INVESTMENT FOCUS-Emerging markets better placed than 2013 to weather yield curve shift

viernes 23 de septiembre de 2016 11:10 GYT

By Sujata Rao

LONDON, Sept 23 (Reuters) - A spike in long-dated U.S., Japanese and German borrowing costs has rekindled memories of the 2013 "taper tantrum" for emerging markets, even though they appear far less vulnerable than during past such episodes.

The gap between two- and 10-year bond yields in the so-called G3 countries widened sharply earlier this month - in Japan's case to the most in seven months - on signs central banks are becoming reluctant to extend the unorthodox stimulus policies they have deployed for years.

From Sept. 8 to 15, the U.S. two- to 10-year yield spread spiked around 20 basis points, while 10-year Bund yields rose above zero for the first time since June.

This curve steepening - when longer-maturity yields rise more than those on short-dated debt - has mostly abated. U.S. rate rises are expected to be slow and gradual, and Japan's vow to steepen its curve by putting a floor under 10-year yields has so far left markets unfazed.

But as the view spreads that central banks are reaching the limits of negative interest rates and money-printing, some are drawing parallels with May 2013, when the Federal Reserve hinted it could unwind its money-printing programme, sparking a huge selloff nicknamed the "taper tantrum".

The U.S. yield curve steepened by more than 100 bps over the following months, causing an exodus from emerging markets and nearly triggering crises in the so-called "fragile five" countries most reliant on foreign capital.

Traditionally, steeper curves are seen as a good thing. A sign of improving growth and rising inflation expectations, they also benefit banks, pension funds and insurers who struggle to increase loan books and pay policyholders when long-term yields are low.

But for developing countries, the fallout is often negative. Higher U.S. yields can crowd out capital flows to riskier assets, all the more so if investors are not confident about a U.S. or global economic recovery.   Continuación...