EM Fixed Income: To every thing there is a season
At a Glance
The desk adopts a cautious stance on emerging market (EM) fixed income, reflecting the evolving geopolitical landscape and its impact on valuations and positioning. Per the full note from J.P. Morgan, the ongoing blockade of the Strait of Hormuz is creating stagflationary pressures, leading to a more uncertain outlook for EM assets. With valuations extended and increased risk appetite in FX, the desk suggests a neutral position to maintain optionality amid heightened uncertainty. This aligns with the current consensus that anticipates a cautious approach as central banks navigate inflation and growth risks.
Key Takeaways
- 01The desk adopts a cautious stance on EM fixed income amid geopolitical tensions.
- 02Valuations in EM have become extended, necessitating a neutral position.
- 03Increased risk appetite in FX is noted, but uncertainty remains high.
- 04Consensus targets for EUR/USD reflect a cautious outlook in light of ongoing risks.
Full Analysis
What the desk is arguing
The desk frames its cautious outlook for EM fixed income as a response to the changing dynamics of the geopolitical landscape, particularly the blockade of the Strait of Hormuz. Per the full note from J.P. Morgan, the current phase of the conflict has led to a rally in risky assets, but valuations have become extended, necessitating a more neutral stance to navigate the uncertainty.
Supporting this view, the J.P. Morgan team highlights that the EM FX risk appetite index indicates increased positioning, yet the overall uncertainty surrounding the conflict and its economic implications warrants caution. The desk notes that while many currencies are trading stronger than pre-war levels, the potential for further volatility remains significant.
Where it sits in our coverage
Our current consensus target for EUR/USD stands at 1.1750, with a range of 1.1300 to 1.2000. Notably, firms like jpmorgan and ubs project targets of 1.1800 for Dec-26, while citi is more conservative at 1.1200.
This cautious view aligns with the broader consensus, as the desk's neutral stance reflects a balance between the upper and lower bounds of the current forecasts, particularly in light of the geopolitical risks at play.
How other firms see it
Aligned firms such as jpmorgan and ubs share a similar cautious outlook, while firms like citi take a more bearish stance. The divergence in views highlights the uncertainty surrounding the geopolitical landscape and its impact on EM assets.
Additionally, the trajectory of EUR/USD is closely linked to the decisions of central banks, particularly the Fed and the ECB, as they respond to the evolving inflation and growth risks in the current environment.
Market Implications
Traders should monitor the EUR/USD level at 1.1750 as a key indicator of market sentiment. Upcoming central bank decisions will likely influence positioning and volatility in the EM space.
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 30 April 2026. This communication is provided for information purposes only. Institutional clients can view
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