Morning Commentary: EM debt weak on heels of Kim-Trump meeting; focus shifts to rates policy

By Rebecca Melvin

New York, June 12 – Emerging market bonds were weaker again overall on Tuesday and the primary market was quiet on the heels of the face-to-face meeting between North Korea’s Kim Jong Un and U.S. president Donald Trump early Tuesday in Singapore.

The two leaders signed a commitment regarding denuclearization of the Korean Peninsula and security for the northern state, but the document was short on details and did not suggest steps needed to achieve those goals.

The market’s focus shifted to the Federal Open Market Committee’s two-day policy meeting and whether it wraps up on Wednesday with a rate hike or not.

“If there were only two rate hikes this year instead of four that would reduce the pressure [on EM markets], Michael Roche, an emerging markets fixed income strategist with Seaport Global Securities, told Prospect News.

“The jury is still out on how high inflation can climb. Their own declaration is a practical stance of watching data point to data point,” Roche said. “My own view is that we are looking at two rate hikes rather than three or four [for the year].”

If the Fed raises rates on Wednesday that would be two for 2018 so far.

Roche said that the outlook for emerging markets debt should start to improve since the shocks of the past month and a half are unlikely to be repeated, and they have shaken out some of the nervous investment, leaving more committed and strategic investment.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.