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Bloomberg

Border debt shines like an unlikely haven in a world of rising rates

(Bloomberg) – As the hunt for investments capable of withstanding rising interest rates accelerates, cross-border assets gain popularity against their larger peers in emerging markets. world returned 2.6% this year, keeping pace. with their 2020 performance, as top-ranked emerging market debt fell nearly 2%, offsetting some of the 5.3% gain from last year, according to the JPMorgan Chase & Co. indexes. inflation, bonds of small developing countries attract buyers because their securities tend to be of shorter duration – which means they are less sensitive to expectations of rising interest rates. The average maturity of frontier market sovereign bonds is six years, compared to 7.9 years for traditional emerging markets, according to the JPMorgan indices. Leo Hu, who co-manages the $ 7 billion strong emerging market debt fund at NN Investment Partners in Singapore. Frontier bonds could generate a return of at least 9% over the next 12 months, he said. Growing interest in border assets nonetheless poses a threat to the global economy as central banks return to policy tightening mode. Less developed countries, such as those in Africa, have a higher risk of default than their larger counterparts in emerging markets. And the more funds they attract, the greater the threat of potential contagion if rising borrowing costs hamper economic growth In Africa In terms of geography, fund managers specializing in border assets are almost united in pushing forward Africa, saying the region will benefit the most from rising commodity prices. These include Angola, Ghana and Zambia – although the latter became the first African country during the Covid-19 era to default when it skipped a Eurobond payment last year . the global recovery and the transition to green energies. The metal accounts for nearly 80% of Zambia’s export earnings. The country’s dollar debt has returned 24% this year amid the prospect of an International Monetary Fund bailout, just behind Ecuador among some 75 emerging markets tracked by the Bloomberg Barclays Indices. Angola, Africa’s second-largest oil producer, is another favorite. A pandemic-triggered drop in crude prices last year led the country to seek $ 6.2 billion in aid from major creditors, allaying fears of a default in one of the worst countries. most indebted on the continent. Angolan bonds have returned 12% this year, according to a Bloomberg Barclays index. African bonds also stand out from their peers in terms of yields. Ghana 2025 securities currently return 6.3%, while Angolan debt of similar maturity returns 7%, according to data compiled by Bloomberg. This contrasts with traditional emerging markets. Indonesian 10-year bonds return only 2.4%. Mexican yield of 3.1%. “We have allocated more to border sovereign credits,” said Jens Nystedt, New York fund manager at Emso Asset Management, a specialist in fixed income investments in emerging markets, overseeing $ 6.8 billion. “In particular, we appreciate the prospects for Nigeria, Ghana and Angola as they would be among the main beneficiaries of the increase in oil prices.” Rescue Program Sentiment towards border markets was also boosted this year after the International Monetary Fund announced a plan to create $ 650 billion in additional reserve assets to help developing economies cope with the pandemic. IMF support has been crucial for Pakistan, which raised $ 2.5 billion in March after resuming a $ 6 billion bailout program. Ecuador’s new government plans to strike a deal with the IMF to ensure financial stability and unlock some of the funds tied to the $ 6.5 billion financing deal reached last year. Bonds from border countries offer returns higher for some reason more chances of default. But many fund managers are not discouraged. “There are quite a few risks, like the worsening of the pandemic or too much stimulus, but we are sticking to the rosier scenario for frontier markets,” said Edgardo Sternberg, co-manager for emerging countries. markets Boston debt portfolios at Loomis Sayles & Co., which oversees $ 3.5 billion of developing country bonds. “Frontier markets should continue to outperform,” he said. Central bank meetings in Nigeria, Kenya and Angola will be the focus this week. Elsewhere, policymakers in Indonesia and South Korea will also decide interest rates. Rates on HoldNigeria are expected to keep its policy rate unchanged on Tuesday, as the fragility of its economic recovery outweighs concerns about inflation, which is remained more than double that of the bank. Monetary authorities in Kenya and Angola are also expected to hold rates on Wednesday and Friday, respectively, while central banks in Indonesia and South Korea are likely to keep rates stable this week, the focus will be on signs of falling. ‘A change of course Tuesday, traders will see whether the Bank of Indonesia is prioritizing monetary stability over supporting growth, amid concerns over accelerating global inflation and the slow pace of vaccinations in the country. The rupee was Asia’s worst performing currency last week and the country’s sovereign bonds extended their losses on Thursday, the Bank of Korea’s growth and inflation forecasts will be the focus as the central bank shifts update its economic projections as Colombia’s central bank meets on Friday. is not a monetary policy meeting, according to Bloomberg Economics Investors will see further impact on the market in Colombia as the country faces more credit downgrades, which would consolidate its loss of investment grade status. in April, although the pace may have slowed from March, according to Bloomberg Intelligence. Faster inflation exiting factories was likely a support as well as strong exports, economists including Chang Shu wrote in a note. The ground yuan remains near its highest level since 2018 against a backdrop of improving outlook for the Chinese economy. It is set to become Asia’s best-performing currency this month after China’s Indian rupee debt similarly outperforms all of its emerging market peers; The benchmark 10-year sovereign yield has fallen nine basis points year-to-date Data due Monday should show Taiwan’s industrial production in April rose at the fastest pace since January, while unemployment could have fallen to 3.7%, the lowest in more than two years. Taiwan’s dollar has remained resilient in recent weeks, supported by strong demand for the country’s exports, even as a worsening Covid-19 epidemic has forced authorities to expand the lockdown to the entire island Investors will also receive an update on improving the region’s business sector. , while figures for Thailand and Malaysia are expected on Tuesday and Friday, respectively, Russia’s industrial production and inflation figures will be under scrutiny, with the ruble beating most of its peers last month with the prospect of further political tightening. Data is provided on Tuesday and Wednesday, respectively, the bimonthly Mexico inflation reading forecast for Monday is expected to show a decline during the first half of May On Wednesday, traders will watch final first quarter gross domestic product data for everything change from last month’s estimate. The minutes of the last central bank meeting released on Thursday to reflect a less conciliatory tone Brazilian CPI consumer price inflation data for May, scheduled for Tuesday, is likely to rise amid a backdrop rising electricity prices, according to Bloomberg Economics. Wednesday in April for signs that a strong trade surplus has boosted the balance. Unemployment figures the next day may reflect increased restrictions in March, as infections soar.


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