Bloomberg

Man Group Says U.S. Yields Put Emerging Bonds at Tipping Point

(Bloomberg) — Emerging-market bonds are becoming increasingly vulnerable as Treasury yields climb with the level of 2% on the U.S. 10-year note likely to trigger major outflows, according to Man Group Plc, which oversees $124 billion.Developing-nation debt is also under threat due to stretched valuations, the prospect of quicker inflation and the danger of Federal Reserve missteps as it tries to counter the pandemic’s impact without overheating the economy, Lisa Chua, portfolio manager on the emerging-markets debt team at the group’s hedge-fund unit Man GLG in New York, said in an interview.“The velocity of the moves in U.S. Treasury yields are now intensifying at a time when both hard currency and local emerging-market bonds are more vulnerable to such a move,” Chua said. “Valuations have gotten increasing stretched and positioning more crowded. In our view, emerging-market bonds have limited cushion left to absorb further increases in U.S. 10-year yields beyond current levels of around 1.5%.”Emerging-nation bonds had a bumper end to 2020, rallying through the last nine months of the year amid the prospect of a global recovery from the coronavirus pandemic. The Bloomberg Barclays EM Local Currency Government Index gained 14% during the last nine months of 2020, reaching a record high in early January. They have since
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