Emerging Markets USD Bond 10s30s Spread Weekly: Overall Stabilization

Overview

This report is a weekly technical analysis by J.P. Morgan of the 10-year to 30-year spread (10s30s spread) of emerging market USD bonds. It monitors the EM Aggregate index's current spread at 68 basis points (down 2 basis points weekly), compared to US Treasuries at 51 basis points and high-grade bonds at 15 basis points. The report covers regional spread performance: Asia lowest (35 basis points), Latin America mid-range (66 basis points), and CEEMEA highest (81 basis points), and lists the steepest and flattest underlying curves.

Core views

Demand side: EM Aggregate spread decreased by 7 basis points month-over-month to 68 basis points, with investment-grade bonds (EM IG) falling to 61 basis points and high-yield bonds (EM HY) slightly rising to 83 basis points. The US Treasuries 10s30s spread remains stable at 51 basis points. Supply side: Breakdown data shows regional differences—Asian sovereign bonds have the lowest spread (35 basis points), mainly influenced by Indonesia (20 basis points); CEEMEA remains high due to factors like Russia-Ukraine bonds; Latin American bonds have a median spread of 66 basis points but with significant volatility. Risk side: Energy bonds like PEMEX and SOAF sovereign bonds saw weekly spread widening exceeding 9 basis points, primarily affected by commodity price fluctuations; technical analysis shows BBB- and below-rated bonds typically have spreads above 80 basis points.

Analysis framework

The methodology centers on three-dimensional spread analysis: first, decomposing overall index trends (e.g., EM Aggregate indicator), then stratifying by credit rating/region. Slope-spread level scatter plots validate curve shapes (e.g., steepening often appears in BB+ and below Latin American bonds), and 1-week/1-year time-series data anchor relative value. Quantitative tools include joint application of credit rating spread models (high-yield bond spreads are significantly more sensitive than investment-grade) and UST curve as a risk-free benchmark for comparison.

Methodology notes

• Fixed Income & Credit AnalysisSpread analysis

  Spread curve shape reflects market risk pricing

  The report's 10s30s spread refers to the yield difference between 30-year and 10-year bonds; a larger positive value indicates higher long-term risk premiums, typically higher for high-yield bonds and regions with strong economic sensitivity (e.g., CEEMEA).

• Fixed Income & Credit AnalysisYield curve analysis

  Curve steepening/flattening relates to interest rate expectations

  The report distinguishes between 'bear flattening' (weakening rate decline expectations) and 'bull steepening' (strengthening rate decline expectations) scenarios through weekly spread changes (e.g., PEMEX's 9-basis-point drop), guiding duration strategies.

Asset mapping & comparison

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

• Indonesian Sovereign Bonds (INDON)

  Representative of lowest spread (20 basis points)

  Strengths

  Low interest rate sensitivity

  Comparison

  15 basis points lower than comparable Asian corporate bonds

  Risks

  Credit rating drag

• PEMEX (Mexican Oil Bonds)

  One of the highest-spread bonds (112 basis points)

  Strengths

  High-yield potential

  Weaknesses

  Weekly volatility of 9 basis points

  Comparison

  40 basis points higher than Latin American peers' average

  Risks

  Oil price volatility risk

Key data

• EM Aggregate Current Value68 basis pointsDown 2 basis points weekly, down 7 basis points annually
• CEEMEA Region Highest Value81 basis pointsUp 10 basis points annually, highest in the region
• PEMEX Weekly Change-9 basis pointsLargest weekly decline

Impact & implications

Spread differences reveal structural opportunities: Low-spread Asian bonds (e.g., Indonesia at 20 basis points) have low interest rate sensitivity, suitable for defensive allocation; high-volatility Latin American bonds (e.g., PEMEX at 110 basis points) may offer excess returns during commodity rebounds but require liquidity risk vigilance. UST curve flattening may narrow emerging market spreads.

Risks

• Widening spreads in energy bonds due to sharp commodity fluctuations
• Short-term spikes in emerging market sovereign bond spreads from USD liquidity changes
• Geopolitical shocks to CEEMEA bonds (as shown in embedded data)

What to watch

• Weekly Bloomberg data updates (codes like JPCUEMAG)
• Direction of UST 10s30s curve movement
• Sustainability of spread expansion in BBB- and below-rated bonds