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US and Euro bond markets to offer safe haven status again if emerging market unrest persists - RWC Partners

Thursday, March 03, 2011
Opalesque Industry Update - Stuart Frost, Co-Head of the Fixed Income, Rate & Currency Team at RWC Partners comments on the impact of recent events in North Africa on bond markets globally:

“Further unrest in emerging markets will inevitably see further flights of capital into American, UK and European markets looking for long term stability, despite the credit crisis. That may continue to underpin non-emerging equity markets on any sell off and indeed may help bond markets stabilise via safe haven pressure.

“Over the past 10 years it has become fashionable to talk about emerging markets alongside more mature markets, but given recent events in the Middle East a general market reassessment of emerging market investments is inevitable in the next six months.

“It is a fact of life that many emerging market currencies have come from an extremely undervalued position over the past five years; to the point that many emerging market countries have become uncomfortable with their currency strength. In the United States we have seen the opposite with a weakened US Dollar at all time lows against some currencies. That should be a future positive for US exports, to the detriment of emerging market export orientated nations. Many emerging market nations are on the march upwards, but set backs are inevitable and commodity market strength is not always a positive when it starts to create inflationary pressures at basic levels, such as food supply.

“As things pick up in countries most affected by the credit crash it is only natural that some will call for a resumption of a more normalised rate cycle, but if events continue to turn against emerging market investments, then it is logical that the US and European bond markets will once again offer a safe haven status and yields could stabalise or fall once again. In currencies, strength in Swiss Francs, Sterling, Japanese yen and the euro would be logical on the back of emerging market outflows." Corporate website: Source

- FG

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