Washington, D.C., April 1, 2015— Uncertainty about how and when the Fed will engineer an increase in the Fed funds rate has led to a notable rise in volatility in the U.S. rate market, according to two new research notes by the Institute of International Finance.
In this month’s CMM Key Issues, the IIF noted that corporate sectors in many emerging market countries now have significant USD liabilities, in both bank loans and bonds. While some of this exposure may be effectively hedged, a number of EM countries are likely to face daunting debt servicing and refinancing risks in the next few years.
“Against this backdrop, and with further U.S. dollar strength in prospect, portfolio capital flows to emerging markets have been subdued—but with a high degree of differentiation” said Hung Tran, executive managing director at the IIF. “EM countries that have implemented sensible macroeconomic policies with a reasonable reform agenda to boost economic potential have been much more resilient—good policy pays off.”