The amount of negative-yielding bonds globally have jumped 47% to more than $12 trillion this year as signs that the Federal Reserve and the European Central Bank will ease spurred a bond rally.
THE Malaysian market is feeling the heat of rising US bond yields and political uncertainties in the run-up to the general election to be held on May 9.
The ringgit has weakened against the US dollar despite higher oil prices while geopolitical uncertainties in the region may have also played a part in the strengthening US dollar, traditionally a safe-haven asset.
Investors are also expecting up to four interest rate hikes now from three previously as the US Federal Reserve considers a faster pace of monetary policy tightening due to inflationary pressure stemming from the higher oil prices and better growth prospects for the US economy.
There is also tighter monetary policy in the advanced economies.
This time around, analysts are more cautious about what this could mean for emerging markets. Not only are US bond yields rising with the benchmark 10-year yielding nearly 3%, the US dollar is also strengthening. This is in contrast to earlier in the year when US bond yields also rose but market reaction was muted because the US dollar was weakening.
Confronted with a stronger greenback, rising Treasury yields and a faster pace of monetary-policy tightening due to better growth, investors will surely return in droves to the US market. That will have an impact on emerging-market currencies, which will weaken. Already, the ringgit is under pressure, weakening to the 3.90 level against the US dollar, from as low as 3.86 in late March.
With rising US interest rates and more selective investors, what will support emerging markets will be the growth outlook. Also, since many emerging-market economies are dependent on exports for growth, especially China and the Asean economies, external demand will be important.
If the growth outlook continues to be bright, then emerging markets should have nothing to fear, even if there are four US interest rate hikes. A stronger US economy will mean better demand for consumer goods, and that will be good for exports-reliant economies.
The problem is more about managing expectations as last year was a really good year for growth and this year,indicators show less robust but more sustainable growth.
The International Monetary Fund, in its latest update to the global economic outlook, says that the upswing that began in mid-2016 is now stronger and more broad-based and sees growth for the advanced economies all the way through next year before it decelerates.
Surely this is good news amid all the doom and gloom over trade wars and other geopolitical uncertainties.
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