Why EM Debt Investors Don't Worry About Rising US Rates

04 February 2018

1 min read

EMD Often Enjoys Positive Returns When US Rates Rise

Through January 31, 2018
Past performance does not guarantee future results. Historical information provided for illustrative purposes only
Local currency is represented by J.P. Morgan GBI-EM Global Diversified Index and hard currency by J.P. Morgan EMBI Global
Source: Bloomberg Barclays, J.P. Morgan and AllianceBernstein (AB)

Some investors aren’t very concerned about Fed policy and rising US interest rates. That’s because history has shown that emerging-market debt (EMD) frequently posts positive returns even when US bond yields rise.

We demonstrated this by dividing the history of the 10-year US Treasury yield since 1993 into periods of rising and declining rates, based on changes of at least 100 basis points. We then calculated the cumulative returns for both hard-currency and local-currency EMD in each of the nine periods of rising yields.

We found only two sell-offs: in 1994 and in 2013, with the latter downturn corresponding to the “taper tantrum.” EMD enjoyed positive returns in the remaining seven periods.

We believe that the Fed hiking cycle of the mid-2000s is particularly relevant to investors today. That cycle most closely approximates the one we are experiencing now and will likely continue to see unfold in the coming years: slow and steady hiking in an environment of solid global growth. Those conditions proved to be very favorable for both hard- and local-currency EMD returns.

The takeaway? EMD investors should weigh today’s global growth backdrop, as well as other fundamental factors, which are much more important for EM than a gradual uptick in US interest rates.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

This is a marketing communication. This information is provided by AllianceBernstein Schweiz AG, Zürich, a company registered in Switzerland under company number CHE-306.220.501. AllianceBernstein Schweiz AG is a financial service provider within the meaning of the Financial Services Act (FinSA) which is not subject to any prudential supervision in Switzerland. Further information on the company, its services and products, in accordance with Art. 8 FinSA can be found on the Important Disclosures page at www.alliancebernstein.com. It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment nor is it a recommendation to subscribe to a financial service. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of an investment can go down as well as up and investors may not get back the full amount they invested. Capital is at risk. Past performance does not guarantee future results.

This information is directed at Qualified Investors only and is not intended for public use.

Why EM Debt Investors Don't Worry About Rising US Rates

More For You