(Bloomberg) -- JPMorgan Chase & Co. moved to the sidelines on emerging-market local bonds, shifting out of its positive stance after less than a month as traders reassess the path for the Federal Reserve’s interest-rate cutting cycle.
The bank cut its recommendation on local-currency debt to market-weight from overweight, citing the “big upside surprise” in US payrolls and risks stemming from the US presidential election in November. It is now neutral across the board in developing-nation assets: from currencies to corporate and sovereign debt, according to strategists including Jonny Goulden and Saad Siddiqui.
Friday’s data “likely closes the pre-election window for EM and we are bringing forward our plan to neutralise EM risk,” they wrote in a report. On top of that, there seems to be “little risk premia priced going into the US elections.”
JPMorgan had adopted the bullish call in early September, saying that monetary easing by the Fed would allow policymakers across the developing world to keep cutting rates. That has helped an index of EM local bonds post its biggest quarterly advance since 2020.
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