Emerging markets debt performance is ultimately driven by a combination of global and domestic forces. Global and domestic conditions set the backdrop against which capital flows, borrowing costs, and currency dynamics are determined, while domestic policy credibility and market structure decide whether countries can absorb external shocks or amplify them.
Global financial conditions are often the first pressure point for EM debt
Global financial conditions are shaped primarily by major central banks and key market variables such as core yields. When the Federal Reserve or other key central banks adopt or maintain restrictive policies, global liquidity tightens, financing costs rise, and risk appetite weakens. However, a tightening in financial conditions is not always the result of central bank action. A major macro-financial shock can also tighten global financial conditions. In such an environment, EM debt generally comes under pressure, with local yields rising and/or spreads widening. The impact is typically more acute in countries with large short-term external financing needs.
You can now read the full whitepaper at the link below
