Our Emerging Market Debt team provide a review of the first quarter of 2014, including an update on the global environment and market-drivers for Emerging market debt in 2014.
Review of the first quarter 2014
Emerging Market ("EM") dollar-denominated debt returned 3.73% in the first quarter as the yield on the benchmark fell from 5.9% to 5.56%. EM spreads tightened from 308 to 297 basis points and the underlying US Treasuries rallied sharply. Despite the start of the Fed's "tapering" of asset purchases, the weak US employment numbers and the generally disappointing US growth data in the first quarter buoyed Treasuries and the yield on 10-year Treasuries fell from 3% to 2.72% during the quarter. Returns were similar for EM high-yield and EM investment grade("IG") bonds: IG EM returned 3.66%, while high yield EM returned 3.9%. In terms of maturity buckets, long duration bonds outperformed strongly, returning 5.7% as the US Treasury curve flattened. Dispersion among country returns was high: the three best performers were the relatively illiquid bonds of Honduras (+12.6%), Belize (+12.1%) and Jamaica (+10.7%), followed by Morocco (+8.4%), the Ivory Coast (+7.9%) and Egypt (+7.6%). Bonds with negative returns were those of Ghana (-2.9%), Russia (-1.8%) and Mongolia (-0.2%).