Emerging markets are now more resilient to US tapering

Significance

The rise in yields is stirring memories of the 2013 ‘taper tantrum’, which led to a dramatic decline in emerging market (EM) currencies and local bonds, prompting three years of net outflows from EM debt and equity funds. Investor fears of US tightening have risen with growth and inflation expectations.

Impacts

• If the trade-weighted dollar index rises further, this will threaten EM currencies, especially those with large dollar-denominated debts.
• The Brent oil price has gained 70% since November to USD68 per barrel but further upside is limited, with no commodities ‘supercycle’ ahead.
• Recent moves fuel fears of the normally staid US bond market becoming volatile; stable ten-year Chinese yields are being seen as a haven.