Senior Portfolio Manager 0.3 3 ideas

EM local bonds were one of the best fixed-income sectors last year, have corrected ~5% due to the Iran war, but fundamentals remain strong (high policy rates, falling inflation, prudent fiscal policy). The sell-off is a temporary repricing. High local rates provide room for central banks to cut, and some economies are leveraged to the commodity cycle. The recent drawdown presents a buying opportunity for a sector with attractive yield and fundamental strength. A prolonged war causing sustained risk-off sentiment or a significant strengthening of the US dollar.

Foreign countries (Japan, Taiwan, Korea) hold ~$20T in U.S. assets. Oil prices in their depreciated currencies are near 25-year highs. If high oil prices persist, these countries may need to sell U.S. assets to fund their oil import balances, creating a potential seller overhang. This is a longer-term financial channel risk that is not widely priced in, suggesting vigilance on foreign flows into U.S. bonds and equities. This selling pressure may not materialize if oil prices fall or if alternative funding mechanisms are used.

"The 10 year yield below 4%... dipping below that is pretty significant." "We've been looking at adding a bit more duration." Breaking the 4% psychological anchor suggests the market is pricing in a slowdown or aggressive Fed cuts. Momentum is now with bond bulls. LONG TLT / US TREASURIES. Inflation resurgence (sticky CPI/PPI) forcing yields back up.