Dollar-denominated bond yields to drift up this year

The “stripped” spread of the JP Morgan EMBI+ Index has dropped below 300 basis points for the first time in about a year. However, we forecast the spread to rebound as less accommodative US monetary policy ultimately diminishes investors’ appetite for risk. We also think underlying US Treasury yields will start to increase again, putting additional upward pressure on the yields of emerging market dollar-denominated government bonds, which have fallen by around 60bp so far this year.