2024 Performance Summary
Emerging market bonds are a vital diversification tool for investment portfolios, serving as an alternative and a complement to high yield allocations. In today’s interconnected global economy, these bonds are significantly affected by geopolitical tensions, changes in leadership, fluctuations in the U.S. dollar and interest rate movements in developed nations, particularly the U.S. The year 2024 proved to be unpredictable, with global economies navigating the aftermath of pandemic-related challenges while confronting new ones. A notable wave of protectionism swept across nations, from the U.S. following the election of a new president, to Brazil where tariffs on Chinese and Asian petrochemical and steel imports were increased. Meanwhile, the war in Ukraine has entered its third year, with Russia expanding its territory by an additional 4,000 square kilometers and issuing threats to neighboring countries should NATO intervene. As the year ended, inflation in the eurozone climbed to 2.4%,1 with Croatia experiencing the highest rate at 4.5%. This increase is a notable contrast to the inflationary pressures seen in the past two years, where the eurozone recorded rates of 8.4% in 2022 and 5.4% in 2023. The latest data indicates a trend toward greater economic stability within the region.
One of the biggest surprises of 2024 was the strength of the U.S. economy and the U.S. Federal Reserve’s interest rate policy, which affects not only domestic but also emerging market borrowing rates. On Dec. 18, 2024, the FOMC cut interest rates by 25 bps, bringing the target rate range to 4.25%-4.50%,2 and adopted a more neutral stance for 2025 while inflation is easing. The lack of clarity on future U.S. rate cuts made the S&P 500® miss the “Santa Rally”—a first in 8 years—by dropping 2.62% at the end of December. Major Latin American economies reacted; Mexico cut interest rates by 25 bps to 10%3 while Brazil increased theirs by 100 bps to 12.25%.4 Argentina ended the year with a roaring stock market performance, with the S&P MERVAL Index almost tripling in value while bond spreads narrowed.
iBoxx USD and EUR Emerging Markets Indices – Launched in 2024
The iBoxx USD and EUR Emerging Markets Broad Index Series were launched in 2024, and they measure the performance of USD- and EUR-denominated bonds issued by entities domiciled in emerging markets. The indices are split into three major series covering sovereign, sub-sovereign and corporate debt. The iBoxx USD Emerging Markets series offers additional regional splits such as Latin America, MENA and the Gulf Cooperation Council (GCC). On March 15, 2024, the iBoxx USD Emerging Markets Liquid Sovereigns & Sub-Sovereigns index was launched. This index aims to reflect the performance of the most liquid securities in the USD-denominated emerging markets space by increasing the amount outstanding to USD 1 billion from USD 250 million for the benchmark and the time to maturity to a minimum of one year. The index incorporates a novel capping methodology to ensure country of risk representation in accordance with the market. Full methodology details can be found here.
