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Emerging Market Debt Market Commentary: February 2025

March 20, 2025

The emerging markets macro backdrop that prevailed in February was largely dominated by the country and sector targeted tariffs signaled by the Trump administration, geopolitical developments, and a decline in US Treasury yields. These events, along with domestic fiscal dynamics, impacted EM currencies, albeit to varying degrees. While most of the Latin American (LatAm) currencies posted positive returns, currencies in EM Asia lost ground against the US dollar.

Figure 1: EM Currency Performance vs USD (February 2025)

Overall, EM local currency bonds posted positive returns in February with the FX component a slight headwind to performance. EM hard currency debt benefited from a rally in treasuries, despite a widening in sovereign spreads. There was a slight uptick in the consumer price index (CPI), year-on-year, in some EM economies. In addition to domestic inflation dynamics, EM central banks faced challenges from tariff threats and price pressures emerging from the Trump administration, with a number of the banks continuing to adjust their monetary easing cycle timeline. Some of the major EM central banks kept benchmark interest rates on hold in their February fixings, with Mexico and India notable exceptions. Mexico’s central bank lowered its key rate by 50 basis points (bps) to 9.5% in February, while the Reserve Bank of India unanimously voted to reduce its key repo rate by 25 bps to 6.25%. In China, economic growth prospects remained cloudy with a slowdown in overall consumption. Amid fluctuations in the Chinese yuan and targeted trade policy measures from the Trump administration, the People’s Bank of China kept its key rates unchanged in February. China’s National People’s Congress will meet in March to present new GDP growth and deficit targets.

Net flows in February for hard currency and local currency bonds amounted to +$1.0bn and -$0.7bn, respectively. (Source: JP Morgan).

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