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Emerging Market Debt Market Commentary: April 2025

May 20, 2025

Emerging market local currency bonds, as represented by the JP Morgan GBI-EM Global Diversified Index, posted gains for the fourth consecutive month in April. In a month when risk-off sentiment initially rose sharply following the US announcement of reciprocal tariffs on trading partners that cast a cloud of uncertainty across financial markets before improving, total returns in April reflected the best monthly performance of the year to date, lifted in part by US dollar weakness.

Figure 1: EM Local Currency Bonds Build on Q1 Gains

The uncertainty around the US-driven global trade situation and US growth concerns prompted investors to question the safe-haven status of US Treasuries, which triggered a sell-off in long-dated US government bonds. Meanwhile, an escalation in trade tensions and a cautious stance from the Organization of the Petroleum Exporting Countries (OPEC) weighed on oil prices in April. This particularly impacted bond yields of oil exporting EM countries in the high yield segment. Geopolitical uncertainty prevailed through April with Russia and Ukraine attacking each other’s energy facilities, Israel ramping up military operations in Gaza, and tensions escalating between India and Pakistan. Overall, EM local currency bonds posted positive returns in April, benefiting from a weaker US dollar. EM hard currency debt posted negative returns largely due to the widening in sovereign spreads. Some EM central banks faced challenges from price pressures emerging from the actions of the Trump administration, with several adjusting their monetary easing cycle timeline. In China, economic growth prospects remained cloudy with downward pressure on prices as the trade dispute with the US escalated. The People’s Bank of China (PBoC) kept its key rates unchanged in April. The Reserve Bank of India (RBI) reduced its key repo rate by 25bps to 6% in April, driven by easing inflation.

Net flows in April for hard currency and local currency bonds amounted to -$7.0bn and -$1.4bn, respectively. (Source: JP Morgan).

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