La Niña to Put Another Dent in Emerging-Market Bond Returns

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Emerging-market bonds, which have been falling out of favor this year, are set to face another threat in coming months: the La Niña weather phenomenon that’s set to drive up inflation.

Matthew Burgess and Catherine Bosley -- Emerging-market bonds, which have been falling out of favor this year, are set to face another threat in coming months: the La Niña weather phenomenon that’s set to drive up inflation.

Weather disruptions pose an inflationary factor “that might slow easing cycles by central banks in places like Latin America,” said Adrian Hilton, head of global rates and emerging market debt at Columbia Threadneedle in London. Colombia’s central bank, for example, “can add possible climatic impacts on food prices to the list of concerns,” he said.

The anticipated La Niña pattern may have an especially pronounced effect this time around as it’s set to occur three months after the reverse El Niño ended, just the third occasion that’s happened since 1950, according to Swiss Re Group. TCW is watching Argentina closely as drought threatens crops, pressures the peso and weighs on the nation’s foreign-exchange reserves just as the government is seeking to stabilize the economy.

 

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