NEW YORK — The 5 percent U.S. Treasury yield is not triggering the emerging market selloff that historical patterns would suggest, a divergence driven by shifting Treasury ownership and independent strength in EM assets.
Private sector entities now dominate foreign Treasury holdings. This segment rose to 50 percent in 2023 and currently stands at approximately 59 percent, absorbing the supply that would otherwise rest on central banks and creating a cushion against yield-driven outflows from developing economies.
EM currencies have decoupled from Treasury performance. This detachment frees them from the traditional anchor of dollar strength, allowing EM credit to stand on its own fundamentals.
EM bonds are delivering relative value. An emerging market bond ETF is yielding 5.78 percent on a 30-day SEC basis—materially higher than domestic and global aggregate bond funds.
"Emerging market bonds are yet again outperforming global aggregate bonds and U.S. Treasuries," said Eric Fine, portfolio manager at VanEck.
Longer-term productivity gains from artificial intelligence could moderate inflation expectations and influence the 10-year Treasury trajectory. If that thesis holds, duration risk in EM assets may compress further relative to developed-market fixed income.
