Our in-depth look at last month’s important events.
US Treasury yields, a weaker US dollar and a sharp rebound in oil prices remained the key drivers of emerging market debt (EMD) in July.
Renewed tensions in the Middle East pushed oil prices higher, with the Brent crude rising 23.6% to US$90.1 a barrel. Higher oil prices reignited inflation concerns globally and contributed to a more challenging backdrop for fixed income markets, particularly for duration-sensitive assets. Gold gained 1.0% during the month, as investors sought defensive assets amid heightened geopolitical uncertainty.
Against this backdrop, global bond yields climbed, weighing on EMD returns. US Treasury yields rose across the curve, with the US 10-year yield rising 27 basis point (bps) to 4.74%, reflecting concerns around inflation. Higher developed market yields created headwinds for both hard currency and local currency (LC) EMD markets during the month. However, some of this pressure was offset by a weaker US dollar, with the DXY Index declining 1.3% following the US Federal Reserve’s (Fed) decision to hold rates steady and maintain a hawkish stance.
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