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Steeped in steepening

Weekly investor research

19 September 2016

  • Yields on long-end bonds in developed economies have been rising of late.
  • This poses a far greater risk to developed market bonds than to EM bonds.
  • The current steepening episode is technical in nature, in our view.
  • EM investors should therefore add duration into any weakness.
  • Longer-term, a return to bear steepening looks likely due to more debt financing and rising inflation amidst slowing growth. We expect long yields to be repressed, however, which means that developed market currencies will take the brunt of thepain; EM currencies stand to gain.

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