(April 7): Bets on falling global interest rates are attracting emerging-market (EM) investors seeking shelter from the volatility sparked by President Donald Trump’s trade war. 

The strategy involves targeting the local-currency bonds of developing countries where yields are high and central banks have plenty of room to ease monetary policy in a prolonged global trade war. It can also be expressed through so-called receivers — wagers that interest-rate swaps will fall.

The trade has put in a strong performance during the market gyrations of the last few days. While US stocks plummeted — the S&P 500 Index capped the steepest two-day slide since March 2020, wiping out some US$5 trillion (RM22.17 trillion) of value — a Bloomberg index of emerging-market local-government debt had its best week in about a month, extending year-to-date gains. Some interest rates swaps in Brazil and Chile notched their biggest weekly drops since 2022. 

“The interesting trade here is in rates,” said Grant Webster, co-head of EM sovereign debt and currencies at Ninety One. “With a weaker growth outlook ahead, EM central banks are going to have a lot more room to ease.”

The bet is another example of how some emerging-market assets have been holding their own amid the volatility that has wrecked portfolios in recent weeks.  

While the MSCI EM equities index wiped out the year’s gains on Monday as the tariff shocks spread, it’s still outperforming the 14% fall year-to-date for the S&P 500. Meanwhile, an index of EM currencies is still up 1.3% so far in 2025, while the dollar fell 3.5%.

Given the eye-watering gyrations across global markets, money managers said they are limiting their local currency bets to select countries and will be quick to cut losses on those that fail to perform.

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