Emerging-Market Bonds Are Picking Up Steam

(Bloomberg) -- The pieces are falling into place for a rally in emerging-market debt.

After trailing behind equities this year, bonds are gaining momentum. The Bloomberg Barclays emerging-market local-currency bond index is approaching the record high it reached almost a year ago. And while equity funds suffered their biggest weekly outflow since the second quarter of last year -- with a U.S.-China trade resolution probably still weeks away -- fixed-income funds are attracting “solid amounts of fresh money,” according to the most recent EPFR Global data.

The brightening bond-market outlook shows how the weakest economic growth since the global financial crisis is boosting the case for the Federal Reserve’s dovish turn, limiting the dollar’s gains and allowing other central banks around the world to follow suit. The U.S. currency had its biggest weekly drop this year ahead of the Fed’s decision Wednesday, when policy makers may keep rates steady while signaling one more increase or none at all through the rest of 2019. Central banks in Indonesia, the Philippines, Thailand, Brazil, Colombia, Taiwan and Russia will probably hold rates, too.

“The increased likelihood of more stable U.S. interest rates and a halt to the balance sheet unwind should put a floor on emerging-market assets by allowing for easier emerging-market central bank policy,” Andrea Iannelli, investment director at Fidelity International in London, said in an emailed note. Iannelli favors local bonds of “countries with the potential for rate cuts, with a steep curve or with generous real yields, such as in Mexico, Colombia, Peru, South Africa, Serbia and Indonesia.”

Read more: Federal Reserve and Friends to Sound Dovish

Will Doves Cry?

Bolsonaro to Meet Trump

• Brazilian President Jair Bolsonaro, making his first visit to the U.S. since taking office, is set to meet Donald Trump on Tuesday at the White House, where they may sign bilateral and tax agreements. He then heads to Chile to meet President Sebastian Pinera on Thursday
• Brazil’s energy minister says an accord to be signed with Trump may pave the way for U.S. companies to explore Brazil for uranium and invest in new nuclear power plants

Macri Blow

• Argentine gross domestic product and unemployment data on Thursday are expected to show the economy sank further into a recession, another blow to President Mauricio Macri as the country heads toward elections
• The dollar-peso’s one-month non-deliverable forward implied yield -- a gauge of traders’ expectations on the currency’s funding costs -- more than doubled last week to 80.9 percent, the highest in the developing world

IMF on Ecuador

• The International Monetary Fund will probably release new details on the economic overhaul needed in Ecuador as part of a $4.2 billion financing program; Ecuador has provided the second-best bond returns in the developing world this year

Key Economic Data

• Poland will see a slew of macro data, including core inflation and labor and output prints. The central bank will publish minutes from its last meeting on Thursday
• South Africa publishes consumer inflation data for February, with the median estimate in a Bloomberg survey predicting a slight acceleration. January retail sales data will also be watched by traders looking for clues on the central bank’s policy path, with the next review scheduled for March 28

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