Weekly Bond Bulletin

3 December 2020

Room to run in EM

November’s risk-on rally produced strong returns for emerging market (EM) debt, but we think there is still room to run.


The clear path towards a global growth recovery, combined with benign monetary policy, provides a constructive environment for emerging markets. Importantly, though, it’s not only these external factors underpinning the EM complex; dynamics within emerging markets are also supportive. Manufacturing has rebounded more sharply in emerging compared to developed markets, as evidenced by both industrial production and export volumes, and signals from survey data are also positive. In particular, China data continues to be robust: recent purchasing managers indices’ were better than expected, and strength was broad-based across new orders, output and employment. That said, the consumer picture still bears watching, as consumer confidence in emerging markets (excluding China) lags developed markets and retail sales are highly dependent on lockdown measures.

Quantitative valuations

Risk markets, including EM debt, posted very strong returns in November, propelled by the month’s momentous fundamental developments: positive vaccine news and the removal of US election tail risk. EM hard currency sovereigns returned 3.9% for the month, while the local currency sovereign market was up 5.5%. Even more noteworthy was the performance of high yield-rated hard currency sovereign debt, which posted its fourth-highest monthly return on record, at 6.1%, trailing only May of this year and two months in the wake of the global financial crisis. While these are impressive gains, we believe spreads could still tighten further, especially with a cross-market view, as high yield-rated hard currency sovereign debt trades wide to US high yield.

High yield-rated EM sovereign debt trades wide to US high yield

Source: J.P. Morgan Asset Management, J.P. Morgan, Bloomberg, Bank of America Merrill Lynch; data as of 30 November 2020.


EM debt funds, particularly in the hard currency sovereign and corporate space, are trading with betas above one, suggesting that consensus is to be overweight the market. The potential for crowded positioning certainly warrants monitoring, but we still see scope for further demand from crossover investors. Meanwhile, supply and demand dynamics are largely balanced. The new issue calendar has picked up for both sovereigns and corporates, but flows have improved, with nearly USD 1 billion of inflows across EM debt strategies in the week to 1 December.

What does this mean for fixed income investors?

Emerging markets stand to benefit from both the supportive external backdrop and the rebound in data within the complex. As we move into the growth recovery phase, it is likely that domestic policy across emerging markets will become less synchronised, requiring a more differentiated approach. We currently see value in the higher yielding parts of the market, though rather than adding risk outright we are focused on rotations and participation in the active primary market.

About the Bond Bulletin

Each week J.P. Morgan Asset Management’s Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.

Click here to read more about our FQT capabilities

NOT FOR RETAIL DISTRIBUTION: This communication has been prepared exclusively for institutional, wholesale, professional clients and qualified investors only, as defined by local laws and regulations.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.

This communication is issued by the following entities:

In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be. In Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919).

For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

Copyright 2020 JPMorgan Chase & Co. All rights reserved.


3 December 2020

GFICC Investors

Building stronger fixed income portfolios for the future

View products