Insights

Emerging Market Debt Market Commentary: November 2024

December 18, 2024

Emerging market (EM) debt markets had a cautious start to November, factoring in US election outcome possibilities. Markets quickly found direction as former president Donald Trump emerged victorious and Republicans took control of the Senate. Consequently, potential changes to tax, energy, trade and regulatory policies were on the table and weighed on investor risk sentiment toward EM debt. Geopolitical risks remained elevated amid Ukraine's use of long-range missiles to target Russian territory, and Russia's approval of a new nuclear deterrence doctrine. Ceasefire talks between Israel and Hezbollah continued, although an agreement remained elusive by month-end. These headwinds were partially offset by the outcome of the US Federal Open Market Committee (FOMC) meeting, where the target range for the federal funds rate by 25 basis points (bps) to 4.50%-to-4.75%.This acknowledged the easing in US labour market conditions and ongoing progress on lowering inflation. EM local currency bonds posted negative returns in November, largely due to the prevailing US dollar strength. EM hard currency debt posted positive returns in November aided by the treasury component and idiosyncratic developments within the EM universe.

In China, long-term benchmark yields remained near multi-decade lows. In its November fixing, the People’s Bank of China (PBoC) maintained its one-year loan prime rate and the five-year mortgage reference rate at 3.1% and 3.6%, respectively. Chinese lawmakers approved a State Council bill, which resulted in the ceiling on local government debt being raised by six trillion yuan (about $840 billion) to 35.52 trillion yuan by the end of 2024. As a result, the amount of ‘hidden’ debt that China's local governments need to repay by 2028 is expected to drop from 14.3 trillion yuan to 2.3 trillion yuan. In Latin America (LatAm), the Bank of Mexico lowered its benchmark interest rate by 25bps to 10.25% in November. However, the Central Bank of Brazil increased its Selic rate by 50bps to 11.25% in November to address inflation risks and support economic stability. In EM EMEA, the Czech National Bank and the South African Reserve Bank lowered their key interest rates by 25bps in November to and 7.75%, respectively. Net flows in November for hard currency and local currency bonds amounted to -$7.2bn and -$2.7bn, respectively. (Source: JP Morgan).

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