Emerging view
The Emerging View

Where do broken bonds go?

By Gustavo Medeiros

As investors return to EM local markets on the back of strong performance and a solid outlook they will be forced to inject capital directly into EM economies. This is because most EM local currency bonds now sit with local pension funds and other local institutional investors. The return of global finance to EM economies will reverse the financial tightening of recent years, which in turn will stimulate growth. Based on our expectation of strong performance in local markets, we expect capital inflows into EM countries to beat still very cautious growth projections over the coming years. In turn we expect the stronger economic conditions to justify tighter spreads in Dollar-denominated bonds too.

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