Renewed attractiveness of EM USD bonds vs EM EUR bonds

In Short

Following wild moves over the past year, rates in developed markets (DM) have calmed somewhat, and so have EM sovereign bond markets. Some of the dislocations have now disappeared.


  • EM EUR bonds are no longer cheap relative to USD peers after this year’s outperformance. The relative pickup vs. EM USD bonds on a cross-currency hedged basis has reverted to the long-term average across all the maturity buckets except the lowest-rated countries.
  • EM USD bonds have become more appealing to European investors, as certain countries now provide a compelling pickup in the USD space relative to their EUR equivalents. The total return outlook for the remainder of the year favours the EM USD index, supported by a higher carry and better duration prospects.
  • Yet, the EM EUR bond index may still benefit from positive technical factors. For the past, two years, EUR issuance has been on a declining trend which is expected to continue.
  • At the country level, Poland and Mexico’s long-end USD bonds are more attractive than their EUR equivalents. In the EUR space, EUR Romania bonds continue to be cheap compared to its rating peers and offer an attractive yield vs its USD equivalents (cross-currency hedged, same maturity).


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Renewed attractiveness of EM USD bonds vs EM EUR bonds

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