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Citi Warns of Poor EM Fixed-Income Returns in Next 3-6 Months

EMERGING MARKETS
  • EM hard & local-currency assets are likely to underperform heavily when compared with reflation-linked global asset classes, despite "positive growth message in the markets- EM capital pull effect is still in vogue, but the pace will adjust to this medium-term correction in core yield
  • See underperformance "starting to become more evident," with lag to other international assets likely widening further in the next 3-6 months
  • If the rise in U.S. real yields proves to be significant, EM currencies will have to find a new location in order to compensate for any disruption in the average spread between U.S. and EM real rates
  • Cite strong demand from U.S. pension funds as a mitigating factor, as well as support for EM current-account balances from the economic recovery
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com

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