Emerging Market Bonds - First quarter 2023 review and outlook

Fixed Income Boutique

Watch 10 min

May 09 2023

Wouter Van Overfelt, Head of Emerging Market Corporates and Luc D’hooge, Head of Emerging Markets Bonds, provide a review on the developments in the first quarter, the current positioning of the strategies as well as an outlook for the remainder of 2023.

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.