Emerging Market Bonds - First quarter 2023 review and outlook

Key takeaways

• Following a strong start to the year, emerging-market bonds endured a difficult February and March amid negative sentiment which arose from inflation concerns and the banking crisis. This led to a rally in interest rates and a widening of credit spreads.
• Vontobel’s Emerging Market Debt Strategy delivered an absolute performance of 1.50%, while our Emerging Market Corporate Bond Strategy ended the first quarter with -1.24%. Both strategies are lagging their benchmarks in the respective period.*
• Relative underperformance of the strategies was driven by an underweight in duration and an overweight in high yield bonds.
• Our market outlook for 2023 remains positive based on attractive absolute and relative valuations and better fundamentals in emerging markets compared to developed markets (widening growth differential).
• Both strategies offer attractive portfolio valuations with yields significantly higher than the benchmark while maintaining a lower duration.