Large interest rate cuts and dovish comments from central banks in Russia and Turkey this month drove rallies in both countries’ local currency bond markets. The yields on sovereign 10-year local currency debt have dropped by 60bp since the start of this month – larger falls than in any other EM. But the rally in Russian bonds has probably run its course. Markets have now shifted towards our view for an extra 50bp of cuts in the current easing cycle. And we think that Turkish bond yields will rise before long as a likely increase in inflation and weaker currency force the central bank to reverse course on easing.
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