How will central bank tightening affect emerging market bonds?

Rajeev de Mello explains that emerging markets are prepared for tighter monetary policy and highlights the Asian countries offering the most attractive yields.



Rajeev De Mello
Head of Asian Fixed Income

Emerging markets are prepared for central bank tightening

Investors are worried; they’re hearing noises from the US Federal Reserve and the European Central Bank about reducing balance sheets and hiking rates. They are wondering whether that will have an impact on emerging markets and on Asian bonds.

In the past, they’ve been right to worry. Generally, when central banks start tightening, it does affect emerging markets.

However, this time round, we’ve already had that event happen back in 2013, so the markets have got over it already.

The central banks in the West and the Bank of Japan have been careful to talk about a very gradual normalisation of the exit from very low interest rates and a very gradual reduction of their balance sheets.

So, there are no surprises, there’s plenty of communication and we think emerging market investors are well set up. Those that are invested should remain confident that we will not see a big drop off in values - at most, a small correction.

60 Seconds with Rajeev de Mello on EM Bonds

Which Asian countries offer the best yields?

In this very low global environment for volatility, we have to look for yields. Within Asia, we identify countries which have higher yields and very stable macroeconomic fundamentals.

Indonesia is one of the countries which we favour: 7% yields for 10-year bonds; a very stable currency; low deficits including a low trade deficit. These are generally all positives for bond investors.

India is another country we like: 6.5% yields around the 10-year part of the curve; also, low central government deficit; a lot of foreign inflows; stable currency.

China’s bonds also offer potential for investors: 3.5% yields but also the opportunity to have an offset in case there is some risk coming from China. Government bonds are usually the safe haven that investors flock to.

60 Seconds with Rajeev de Mello on Volatility and Yields

Subscribe to our Insights

Visit our preference center, where you can choose which Schroders Insights you would like to receive

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


Rajeev De Mello
Head of Asian Fixed Income


Please consider a fund's investment objectives, risks, charges and expenses carefully before investing. The Schroder mutual funds (the “Funds”) are distributed by The Hartford Funds, a member of FINRA. To obtain product risk and other information on any Schroders Fund, please click the following link. Read the prospectus carefully before investing. To obtain any further information call your financial advisor or call The Hartford Funds at 1-800-456-7526 for Individual Investors.  The Hartford Funds is not an affiliate of Schroders plc.

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security/sector/country.

Schroders Capital is the private markets investment division of Schroders plc. Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.