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iBoxx USD Emerging Markets Monthly Commentary: March 2024

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Catalina Zota

Director, Fixed Income Product Management

S&P Dow Jones Indices

iBoxx USD Emerging Market Indices Overview

In January 2024, S&P Dow Jones Indices launched the iBoxx USD Emerging Markets Broad Overall Indices.  The index suite represents the most comprehensive fixed income hard currency snapshot of the market due to its broad methodology construction.  To enter the index, bonds must have a minimum notional amount of USD 250 million and no minimum time to maturity is required.  As of March 31, 2024, the index has 2,991 bonds covering sovereigns, sub-sovereigns, corporates and covered bonds, and has a market value of USD 2.4 trillion.

The iBoxx USD Emerging Markets Broad Sovereigns & Sub-Sovereigns Index is a headline index within the iBoxx USD Emerging Markets Broad Overall Series.  The index is a simple market-capitalization-weighted benchmark covering sovereign and sub-sovereign entities domiciled in emerging markets.  As of March 31, 2024, the index included 952 bonds from 144 issuers.  The index serves as the underlying benchmark for the iBoxx USD Liquid Emerging Markets Sovereigns & Sub-Sovereigns Index.

The iBoxx USD Liquid Emerging Markets Sovereigns & Sub-Sovereigns Index measures the performance of USD-denominated sovereign and sub-sovereign bonds issued by emerging markets entities.  The index rules select only bonds with at least USD 1 billion in notional amount outstanding and one year to maturity.  Within the emerging markets, the index focuses on economies whose gross national income (GNI) per capita is below two times the World Bank high income GNI cut-off.  GCC countries are also eligible for the index regardless of their GNI.  A country capping is applied and reviewed annually in December, and the current cap is 7.5%.  The index is designed to be used as part of the iBoxx tradable ecosystem.

The iBoxx USD Emerging Markets Broad Corporates Index is a headline index within the iBoxx USD Emerging Markets Broad Overall Series.  The index is a simple market-capitalization-weighted benchmark that covers corporate and covered bonds issued by emerging markets issuers.  As of March 31, 2024, the index included 2,039 bonds from 849 issuers.

March 2024 Commentary

Market Overview:

U.S. fiscal policy has been steady since the beginning of 2024.  According to the U.S. Bureau of Labor Statistics, the CPI increased 0.4% in February after rising 0.3% in January 2024.  Over the past 12 months, inflation in the U.S. reached 3.2%, fueled by shelter and gasoline.  Based on the FOMC dot plot released on March 20, 2024, the Fed’s target rate is around 4.25%-4.50%, which implies three rate cuts in 2024.  The overnight repo rate, a measure of market liquidity, ranged between 5.31-5.32%, unchanged from February.  On the equities side, the S&P 500® was up 3.1% in March, driven by the performance of the Information Technology sector.

With the U.S. as a backdrop, Mexico’s and Brazil’s central banks moved forward with rate cuts.  Mexico’s benchmark interest rate was cut to 11% from 11.25% last month.  Brazil’s Selic rate dropped to 10.75%, the lowest level since March 2022.  Promises from Argentina’s President Javier Milei of economic reform, government reduction and taming of the spiraling inflation—276.2% year over year brought new enthusiasm to the bond market. On March 11, the country started the process to refinance $50 billion worth of ARS-denominated bonds maturing between 2025 and 2028.  The news contributed to a rally in the Argentinian bond market—also reflected in the current iBoxx USD Emerging Market monthly returns.  

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