Performance for emerging market (EM) debt was mixed during a truly historic month for financial markets. The announcement of US reciprocal tariffs triggered a global financial market sell-off, which was later mitigated by a 90-day pause in their implementation. Amid this turmoil, higher-risk frontier sovereign bonds (-2.4%) [1] underperformed compared to hard currency sovereign bonds (-0.2%) [2] and corporate bonds (-0.4%) [3]. However, EM local currency bonds (+3.3%) [4] emerged as the standout performer, helped by significant US dollar weakness over the period.

On 2 April, President Donald Trump announced a set of reciprocal tariffs that far exceeded market expectations. These included a 10% baseline tariff on most countries and much higher reciprocal tariffs on countries with the largest trade surpluses with the US. Amid pronounced weakness in global equity markets, the yields on US Treasuries also rose sharply in the days after the 2 April reciprocal tariffs announcement. However, Trump’s announcement on 9 April of a 90-day pause on reciprocal tariffs for all countries (except China), provided significant market relief. Consequently, the 10-year US Treasury yield ended the month four basis points (bps) lower at 4.16%, having reached as high as 4.49% earlier in the month.

Amid the tariff drama, OPEC+ announced a faster-than-expected increase in supply to penalise members exceeding their production limits, notably Kazakhstan and Iraq. This, coupled with global growth concerns related to US tariffs, led to a 15.6% decline in Brent crude oil prices over the month, closing at $63.12 per barrel, the lowest level in four years.

In terms of performance specifics, the JP Morgan EMBI Global Diversified Index fell by 0.2% in April, with spreads widening 19bps to 368bps, although this marked a recovery from an intramonth high of 393bps. This resulted in a negative spread return (-1.0%), which outweighed the positive treasury return (+0.8%). Investment-grade (+0.2%) bonds were better protected due to the longer duration of the sub-asset class; meanwhile, high-yield underperformed (-0.6%), with spreads widening by 37bps over the month. Latin America and the Middle East were the top performing regions, while Africa significantly underperformed.

In local currency sovereign EM bonds, the JP Morgan GBI-EM Global Diversified Index (unhedged in US dollar terms) rose by 3.3% this month. The yield on the index fell by 21bps to 6.09%, generating a positive bond return (+1.5%), which was accompanied by a large positive currency return (+1.7%). Europe was the top performing region, which benefited from euro strengthening against the US dollar amid the tariff turmoil. In EM corporate bonds, the JP Morgan CEMBI Broad Diversified (EM Corporate Index) fell by 0.4%, as the negative spread return (-1.2%) outweighed the positive treasury return (+0.8%), with spreads widening by 29bps to 294bps.

Selected country news

The International Monetary Fund (IMF) released its latest global economic forecast, reducing its global growth projection for 2025 from 3.3% to 2.8% due to the likely direct and indirect disruptions caused by Trump's tariffs. Among the larger EMs, India is still expected to be the fastest-growing economy, with a growth forecast of 6.2%, while China's growth projection was cut from 4.6% to 4%. Mexico saw one of the largest downward revisions, with forecast growth of 0.3% in 2025 compared to 0.9% previously.

The IMF continues to play a crucial role in supporting emerging economies. During the month, Argentina, reached a four-year US$20 billion (bn) Extended Fund Facility arrangement with the IMF, which included the immediate disbursement of US$12bn. The IMF also sanctioned a new two-year US$4.5bn arrangement for Morocco under the Flexible Credit Line (FCL), aimed at crisis prevention. Conversely, the IMF suspended Colombia’s FCL due to insufficient measures being taken to reduce its public deficit and debt.

The US continued to push for an end to the war between Russia and Ukraine. Presidents Trump and Zelensky had a brief one-on-one meeting at the Vatican while attending Pope Francis’s funeral. Following weeks of negotiations, the US and Ukraine reached a deal over access to Ukraine’s natural resources by the end of the month. In other geopolitical news, tensions between Pakistan and India escalated following a terrorist attack in the India-controlled part of Kashmir on 22 April. In response, India blamed Pakistan and threatened military action, which was in addition to various other steps, including the suspension of a bilateral water sharing agreement.

On the ratings front, there were a raft of downgrades to rating outlooks during the month. This included Moody’s downgrading Cambodia’s and Thailand’s outlooks to ‘negative’ due to the downside risks stemming from new US trade policies. Moody’s also lowered Bolivia’s rating from Caa3 to Ca amid a higher risk of default given the country’s worsening balance of payments crisis. On a more positive note, Fitch upgraded Nigeria to B as it judged that the country’s monetary, foreign exchange and fuel subsidy reforms were starting to bear fruit.

Outlook

We continue to see value in the high-yield and frontier space where spreads and yields look attractive, supported by structural reforms and continued multilateral support. However, we think the growing risk of a US recession could support a US Treasury rally, so we have reduced our underweight in investment-grade.

In EM local markets, although many rate-cutting cycles are mature, central banks will likely continue cutting rates as economies slow and as inflation benefits from favourable base effects. We remain overweight in Latin America due to attractive real rates in the region. For EM corporates, credit fundamentals remain supportive and net supply should keep reducing as companies continue to pay down their bonded debt. As global economic growth slows, we are likely to see downward adjustments to operational performance; however, leverage levels remain low and interest coverage healthy.

The biggest risks to the EM asset class include an escalating trade war which would hurt EM exports and global growth. A US recession and a failure of the Chinese economy to rebound could weigh on commodity prices, particularly oil. Geopolitical risks also remain, including in the Asia Pacific region, the Middle East and Russia-Ukraine.