EM Fixed Income: Still waiting for the conflict to pass over
At a Glance
The desk maintains a cautious stance on emerging market (EM) fixed income, emphasizing the need for patience as geopolitical tensions persist. Per the full note from J.P. Morgan, the ongoing conflict involving the U.S., Israel, and Iran remains a dominant factor, with a base case of a four to six-week timeline for resolution. Recent developments suggest that while military actions are ongoing, the market is beginning to shift its focus from inflationary pressures to potential growth concerns, particularly as oil prices rise. This dynamic is reflected in the mixed price action across EM rates, with short-term yields declining while longer-term yields show volatility.
Key Takeaways
- 01Geopolitical tensions are the primary driver of current EM fixed income market dynamics.
- 02The market is shifting focus from inflation to growth concerns, particularly with rising oil prices.
- 03Patience is advised as the situation evolves, with potential scenarios ranging from abrupt resolution to prolonged conflict.
- 04Mixed price action in EM rates reflects uncertainty and the need for careful positioning.
Full Analysis
What the desk is arguing
The desk frames this as a period of heightened uncertainty in EM fixed income, driven by geopolitical events that are influencing market sentiment and pricing. J.P. Morgan's analysis indicates that the conflict has led to a reassessment of growth versus inflation risks, particularly as oil prices rise and central banks may need to adjust their policies accordingly.
Supporting this view, the commentary notes that EM one-year and two-year yields have recently decreased, suggesting a market reaction to potential growth slowdowns. This aligns with J.P. Morgan's cautious positioning in local markets and a more negative outlook on EM credit due to tight spreads.
Where it sits in our coverage
For EUR/USD, our current consensus target is 1.1750, with a range of 1.1300 to 1.2000. Notably, jpmorgan has a target of 1.1800 for March 2026, while goldman projects a higher target of 1.2500 for the same period.
This view aligns with the broader consensus, as the desk's target sits within the middle of the range, indicating a balanced outlook amidst the prevailing uncertainties in the EM landscape.
How other firms see it
Several firms, including ubs and hsbc, share a similar outlook, projecting targets around 1.2000 for March 2026. Conversely, firms like citi hold a more bearish stance, targeting 1.1300 for the same period.
The trajectory of EUR/USD is closely linked to the actions of central banks, particularly the ECB's response to inflation and growth dynamics, which could further influence market sentiment and positioning in the coming weeks.
Market Implications
Traders should watch for movements in oil prices and their impact on EM yields, particularly in the short end of the curve. A key level to monitor is the EUR/USD consensus target of 1.1750, which may be influenced by upcoming geopolitical developments.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
From the original
Jonny Goulden, Anezka Christovova and Ben Ramsey discuss the latest market developments and their impacts for the EM fixed income asset class. This podcast was recorded on 31 March 2026. © 2026 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not
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