EM debt sell-off: Investors underweight local currency on QE fears

Emerging market debt managers have been taking underweight positions in local currency bonds as they expect the dollar to strengthen once the Fed turns off the QE tap.

Monetary stimulus in the developed world had depressed yields on US treasuries and gilts, driving investors into high yield and emerging market debt as the hunt for returns intensified. But comments from Fed chairman Ben Bernanke earlier this month that the US could taper its QE programme have sent the dollar and yields on US 10-years back up – two factors that could hurt local currency EMD. “At the moment, we are underweight local currency debt,” said Grant Webster, manager of the Investec Emerging Markets Blended Debt fund, which combines strategies from across the firm’s £9bn EMD r...