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Positive U.S. Real Yields Add to Toxic Emerging-Market Cocktail

  • Improving U.S. returns may erode allure of riskier assets
  • Franklin Templeton, Fidelity cut exposure in developing world
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The long list of worries for emerging-market money managers threatens to expand further with positive real yields in the U.S. worsening an outlook already clouded by slowing growth and the war in Ukraine.

The first warning shots were fired last week, when the inflation-adjusted rate on 10-year Treasuries briefly rose above zero for the first time in two years. While the level didn’t hold for long, it did signal a turning point -- the era of negative yields that sent investors rushing to emerging markets in search of higher returns may be nearing an end as the Federal Reserve hikes rates aggressively.