Fixed income

Strong performance of EM local currency bonds has been driven by a bearish US dollar and fundamental factors supporting sustainable appreciation toward a stronger equilibrium.

With strong fundamentals, broad region and sector diversification, and a track record of weathering financial crises, emerging-market investment-grade (EM IG) bonds have evolved into a high-quality asset class, in our view. Yet, despite a robust risk-return profile, EM IG remains significantly underrepresented in actively managed, dedicated strategies.

Accelerating rating upgrades and renewed inflows into the asset class are likely to support EM spreads relative to their historical levels and other credit markets. Absent a major global shock, we expect EM bonds to remain resilient, offering stable carry even if capital appreciation becomes more difficult to capture.

The next few days could be pivotal to any concerns around the independence of the US Federal Reserve (Fed).

The $5.2tr asset-backed finance (ABF) market represents a growing opportunity to gain exposure to high quality loan pools and the returns they can generate.

On Thursday, markets received preliminary Purchasing Managers’ Index (PMI) figures for August. As a reminder, PMIs are timely indicators of trends in manufacturing and services, with a number above 50 signalling an expansion and below 50 a contraction.