Emerging Markets USD bond curves steepen broadly; caution still warranted on long-duration allocations

Overview

The report systematically compares the 10-year to 30-year spread curves of global Emerging Markets USD sovereign, quasi-sovereign and corporate bonds, and contrasts them with U.S. Treasuries and U.S. investment grade corporate bonds. Over the past month, Emerging Markets curves have steepened broadly, with the aggregate curve, EMBIG, CEMBI, and most investment grade and high yield segments steepening in tandem. The report further analyzes curve slopes by region, index, credit rating and issuer, and identifies issuers with the largest monthly changes as well as those with the steepest and flattest current curves.

Core views

The previous mild flattening trend in Emerging Markets USD bond curves has reversed, with broad bear steepening this month. Performance across EMBIG regions and issuer types was relatively consistent, while there was clear divergence within CEMBI: Latin America leaned toward bull steepening, while other regions leaned toward bear steepening; bear steepening among commodity-related issuers and Chinese internet issuers was particularly notable. Given that current average 10s30s spreads are not especially generous, and U.S. Treasury yields may still rise, the risk-reward for long-duration bonds lacks appeal.

Analysis framework

The research uses tradable bonds eligible for JPMorgan flagship Emerging Markets indices as the sample, selects structurally similar 10-year and 30-year bond pairs, calculates issuer 10s30s spread curve slopes, and aggregates them at the index level. Analytical dimensions include historical changes, region, index, issuer type, credit rating, 10-year spread level and one-year range, alongside comparisons with U.S. Treasury and U.S. investment grade corporate bond curves.

Methodology notes

• Fixed Income Curve Analysis10s30s Spread Curve Slope

  Measures the credit spread curve slope by subtracting the 10-year bond spread from the 30-year bond spread for the same issuer.

  A rising slope represents curve steepening, while a declining slope represents curve flattening; if widening long-end spreads drive the steepening, it is bear steepening, while if short-end spreads tighten more significantly, it may appear as bull steepening.

• Bond Pairing and Index ConstructionRules-Based Bond Pairing and Index Aggregation

  Selects comparable 10-year and 30-year bonds in terms of maturity and structure from eligible bonds in flagship Emerging Markets indices, then aggregates them into index-level curves.

  The index rules emphasize similar bond structures, tradability and replicability; the research team reviews bond pairs monthly and prioritizes retaining more liquid on-the-run bonds to improve the intuitiveness and executability of comparisons.

• Relative Value AnalysisCross-Comparison of Curve Slopes

  Compares 10s30s slopes with 10-year spreads, credit ratings, regions, index categories and historical ranges.

  This method is used to assess whether curve steepness is consistent with credit risk, spread levels and regional characteristics, and to screen for issuers with the steepest, flattest and most significant monthly changes.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Emerging Markets long-duration USD bonds

  Directly negative

  Strengths

  The Emerging Markets long end typically offers higher spreads than the short end and may benefit from a future curve retracement.

  Weaknesses

  Current average 10s30s spread compensation is relatively limited, and broad bear steepening occurred this month.

  Comparison

  The Emerging Markets aggregate curve is 71bp, clearly higher than the 19bp of U.S. investment grade corporate bonds, but it still faces the common shock of rising U.S. Treasury yields.

  Risks

  Further increases in U.S. rates, widening term premiums, broader credit spreads and deteriorating liquidity.

• EMBIG sovereign and quasi-sovereign bonds

  Cautious

  Strengths

  The index has broad coverage, and curve analysis can form relatively clear relative value comparisons across regions and issuers.

  Weaknesses

  This month the curve steepened by 4bp to 74bp, with broad pressure across regions and issuer types.

  Comparison

  The current EMBIG slope is higher than CEMBI's 62bp; among them, EGYPT, PEMEX and ELSALV are among the steepest curves.

  Risks

  Deteriorating sovereign fundamentals, refinancing pressure, policy uncertainty and rising global rates.

• CEMBI Emerging Markets corporate bonds

  Divergent

  Strengths

  Regional and sector divergence can create term structure and issuer relative value opportunities.

  Weaknesses

  Commodity-related issuers and Chinese internet issuers showed relatively clear bear steepening.

  Comparison

  The CEMBI curve is 62bp, lower than EMBIG, but monthly steepening reached 5bp; Latin America and other regions were driven in different directions.

  Risks

  Deteriorating cyclical credit, commodity price volatility, regulatory and macro uncertainty, and transmission of interest rate volatility to credit curves.

• U.S. Treasuries

  Key external driver

  Strengths

  High liquidity, serving as a hedging tool and benchmark for duration risk in Emerging Markets USD bonds.

  Weaknesses

  The 10s30s curve has steepened to 53bp, and further yield increases may pressure long-duration bond prices.

  Comparison

  The U.S. Treasury curve steepened by 5bp over the month, slightly more than the 4bp steepening in the Emerging Markets aggregate curve.

  Risks

  Inflation, fiscal supply, term premium and repricing of monetary policy expectations.

Key data

• Emerging Markets aggregate 10s30s curve71bp, steepened by 4bp month-on-monthThis month saw bear steepening, reversing the mild flattening trend of the previous several months.
• EM investment grade 10s30s curve65bp, steepened by 4bp month-on-monthThe investment grade segment also participated in this broad steepening.
• EM high yield 10s30s curve85bp, steepened by 4bp month-on-monthThe current slope is higher than that of the investment grade segment.
• EMBIG 10s30s curve74bp, steepened by 4bp month-on-monthTrends were relatively consistent across regions and sovereign and quasi-sovereign issuers.
• CEMBI 10s30s curve62bp, steepened by 5bp month-on-monthLatin America leaned toward bull steepening, while the remaining regions mainly showed bear steepening.
• U.S. Treasury 10s30s curve53bp, steepened by 5bp month-on-monthSteepening in the U.S. rates curve constitutes an important external pressure on long-duration Emerging Markets USD bonds.
• U.S. investment grade corporate bond 10s30s curve19bp, steepened by 1bp month-on-monthThe slope is significantly lower than that of Emerging Markets credit bonds.
• Largest monthly steepeningSQM +19, JBS +15, TENCNT +13, PEMEX +10, INDON +9bpBear steepening among commodity-related issuers and Chinese internet issuers was relatively prominent.
• Largest monthly flatteningGUATEM -16, VALEBZ -11, PANAMA -11, URUGUA -7, MTRC -6bpThere remains significant divergence in curve changes among issuers.
• Currently steepest curvesEGYPT 136, PEMEX 118, ELSALV 111, SOAF 106, MEX 94bpThe steepest issuers are mainly distributed across CEEMEA and Latin America.
• Currently flattest curvesINDON 19, EXIMBK 36, GUATEM 36, ECOPET 37, CHILE 41bpA flatter curve does not necessarily imply lower risk and still needs to be assessed together with credit spreads and fundamentals.
• Index constituent adjustmentsAITOCU exited the EMBI 10s30s index, while PRXNA was included in the CEMBI 10s30s indexThe adjustment occurred at the end-July rebalancing.

Impact & implications

Broad bear steepening of curves means long-end Emerging Markets USD bonds are under greater spread and interest rate pressure relative to the short end. In an environment where U.S. Treasury yields may continue to rise and macro uncertainty remains elevated, the return compensation for extending duration is limited. Investors should control long-end exposure and monitor curve relative value. Issuer-level divergence can still provide opportunities for pair trades or maturity switches, but commodity credit, Chinese internet credit and high-beta sovereign bonds require stricter interest rate and credit risk management.

Risks

• Further increases in U.S. Treasury yields could pressure prices of long-duration Emerging Markets USD bonds.
• Intensified macro uncertainty and interest rate volatility could drive further bear steepening of curves.
• Commodity-related issuers and cyclical credit may see more pronounced widening of long-end spreads.
• Curve divergence in Chinese internet credit may continue and be affected by macro and regulatory factors.
• Fiscal, political and refinancing risks of sovereign and quasi-sovereign issuers may amplify curve volatility.
• Monthly index rebalancing and changes in bond liquidity may affect curve comparability and trade execution.
• Historical performance and modeled scenarios do not represent future results, and data and market prices may change.

What to watch

• Whether U.S. Treasury yields and the 10s30s curve continue to steepen.
• Whether the Emerging Markets aggregate curve can break out of its recent range or turn back toward flattening.
• Whether steepening in EM investment grade and high yield curves diverges further.
• Whether CEMBI Latin America's bull steepening can continue, and whether other regions still maintain bear steepening.
• Subsequent changes in issuers with large recent steepening, such as SQM, JBS, TENCNT, PEMEX and INDON.
• Whether the steepest curves, such as EGYPT, PEMEX, ELSALV, SOAF and MEX, experience mean reversion.
• Changes in commodity prices, global growth expectations and the Chinese internet credit environment.
• Month-end index rebalancing, bond pairing adjustments and changes in on-the-run bond liquidity.