Emerging-Market Bonds See Biggest Yield Jump Since Trump Victory

  • Selloff gains pace as average bond duration crosses six years
  • Average EM borrowing costs climb to a four-month high

Slowly but steadily, a selloff is taking hold in developing-nation bonds.

A Bloomberg Barclays Index of hard-currency emerging-market bonds has fallen for six straight days, capping the biggest weekly yield jump since last year when Donald Trump’s victory spurred a selloff in risk assets. The gauge shows average borrowing costs for governments and companies in developing nations have risen to a four-month high of 4.68 percent.

Concern that the flattening of the U.S. yield curve may signal a recession in world’s biggest economy is adding to jitters across risky assets, with high-yield bonds also sliding last week. Heightened political risks from Venezuela to Saudi Arabia are causing emerging-market investors to question whether they are being compensated for risks after a rally this year that sent yields to a four-year low in September.

A key metric watched by investors is the duration on the emerging-market bond index, which crossed six in October. That can be understood in two ways: it now takes six years for bondholders to recoup their investments, or the gauge is expected to suffer a 6 percent loss for every percentage-point increase in interest rates.

The index comprises 1,799 sovereign and corporate notes with a combined value of $1.93 trillion.

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