Zero Risk Premium Leaves EM Bonds Less Appealing Than Ever
- Local-currency yields briefly trade at discount to US rates
- Zero or negative carry make EM bonds vulnerable to selloff
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An unlikely aberration has taken place in global bond markets for the first time on record: yields on emerging-market bonds in local currencies have fallen below US Treasuries.
A selloff in US government debt since May has sent borrowing costs for the world’s largest economy soaring to an average yield of 5%. But local-currency sovereign yields haven’t matched that pace and are also trading around 5%, causing the classic “risk premium” expected in emerging markets to all but vanish.