Tantrum fears fade as riskier EM bonds rise to defy taper talk

Riskier emerging-market government bonds outperformed their global peers in August, defying the prospects for higher US borrowing costs as the Federal Reserve moves toward reducing monetary stimulus.

Bonds issued by South Africa, Turkey, Indonesia and India returned at least 1.2 per cent last month, excluding currency fluctuations, the biggest gains among 46 sovereign markets tracked by Bloomberg. Global government debt lost 0.5 per cent, while Treasuries fell 0.2 per cent.

Concerns the 2013 taper tantrum will be repeated may have been overblown given the resilience shown by high-yielding emergingmarket bonds even as Fed Chair Jerome Powell said last week the US central bank could start slowing asset purchases this year. Goldman Sachs Group sees a smaller reaction in the US bond market to tapering than in 2013 because the policy change is being well telegraphed.

“Investors are getting pushed into higher-yielding EM government bonds,” said Eugene Leow, a fixedincome strategist at DBS Group Holdings in Singapore. “Developed-market yields stayed persistently low even as Powell guided that the taper is set to start later this year.”

A possible decrease in local coronavirus infections may see more inflows in emerging-market debt, which still looks “underowned,” he said.