What's takeaway 1 on EM Fixed Income?

J.P. Morgan flags a technical signal in EM fixed income worth monitoring.

What's takeaway 2 on EM Fixed Income?

Tactical opportunities may arise amid the current noise.

What are the market implications for EM Fixed Income?

If the technical signal is confirmed, it could support short-term bullish positioning in select EM assets, particularly in rates and FX markets that have been oversold. However, the signal's impact may be limited by ongoing macroeconomic uncertainties.

What are the risks to this view on EM Fixed Income?

Key risks include a reversal of the technical signal due to renewed global risk-off sentiment, tighter US monetary policy, or idiosyncratic EM political shocks. The signal may also prove false in a noisy environment.

EM Fixed Income: A technical signal amid all the noise

What the desk is arguing

J.P. Morgan analysts highlight a technical signal emerging in EM fixed income despite the prevailing macro noise, suggesting potential for tactical opportunities. The podcast, recorded on January 22, 2026, likely discusses how this signal aligns with broader EM dynamics, though specific currency implications are not detailed in the given excerpt.

Where it sits in our coverage

Our internal coverage does not include specific targets for EM currencies discussed in this podcast. However, our general firm stance leans toward cautious optimism in EM, with a consensus view that EM assets may benefit from a stabilizing global rate environment. The firm's spread remains wide due to divergent regional outlooks.

How other firms see it

Other firms have not provided direct commentary on this specific J.P. Morgan podcast. However, based on recent research: - Goldman Sachs: constructive on EM FX, citing valuation support. - Morgan Stanley: cautious, highlighting global risk aversion. - Deutsche Bank: neutral, awaiting clearer macro signals.

Hello, and welcome to our At Any Rate Emerging Markets Focus podcast, a place for us to discuss recent developments and key issues of focus in the emerging market fixed income asset class. I'm Jonny Goulden, Head of EM Fixed Income Strategy here at J.P.Morgan, and I'm joined by Aneshka Krista Rova, Head of EMEA EM and LATAM Local Market Strategy, and Ben Ramsey, Head of EM Sovereign Credit Strategy, both at J.P.Morgan. Aneshka, Ben, thanks for joining.

Hi, Jonny. Nice to be here. Hey, Jonny.

How are you doing? Great. So it's been another week of high headline volatility, although, again, without large moves across the EM fixed income markets, even as other markets actually did react at the beginning of the week with volatility rising and some risk off.

So in today's discussion, we'll try and catch up on what we think the latest developments might mean or not for emerging markets and generally how we're looking at the markets environment. Yeah, Jonny. I would say we've got basically a torrent of headlines this week, and we probably weren't expecting that the U.S. really pushing its intention to own Greenland in some form would be on that list, but it was.

But as you mentioned, EM assets have held in quite well. They've really been quite unreactive to these headlines, to the rise of uncertainty that they bring, even as we see moves in VIX and U.S. equities be much more notable. So, yeah, what do we think is going on here?

Yeah. So I guess on one level, we talked last week about the ability for markets to look through some of the noise around geopolitics and headlines coming from the statements from the U.S. administration. So as long as they don't really shift the needle on that global macro environment, which we think is still positive, we talked about how markets can look through those.

We generally have been with a pro-risk stance on emerging markets, given that overall cyclical backdrop, although we've had technical signals early this week that markets were getting overbought, and we have tactically adjusted some of our views around currencies, and I'm sure we'll come back to that. But I think Greenland, we pointed out, does look a bit different than Venezuela and Iran, which were obviously headline movers at the beginning of the year. Venezuela and Iran, they're very isolated from global financial markets, and except through oil, largely from the global economy as well.

But anything serious around Greenland involving coercive U.S. ownership, that probably is going to mean some trade disruptions between the U.S. and Europe and a larger rethink of terrorists for financial markets. We did have a brief hint of that at the start of this week, volatility indicators, VIX, ROSE, equities fell. The last 24 hours, of course, we've had some backtrack on the thread of force over Greenland or even over stronger ownership language, and now it seems that there is some negotiation, which is going to be the focus, so we're seeing a bit of a mini relief rally.

But throughout, I think you have to say, EM markets were a little moved, and we are now sitting here at the same or better levels than we were at the end of last week, despite all of this headline volatility. I guess one explanation is last year we had a lot of this. You will remember in the first four or five months of the year, extreme tariff threats, they were a constant on-off for risk markets, and they were often on, and then they were off with as full force.

I think markets learned somewhat not to react to these because these reversals, they just can happen in a tweet, and you don't want to get fully one way only to be the other. I think there is some of that. I think there is also a background theme here of the diversification out of U.S. assets.

I think for us, that's more about these have been the U.S. We've written about this has been the world's go-to investment destination for 10 to 15 years to quite large and extreme levels. On the other hand, emerging market assets have been shunned by the world for 10 to 15 years across fixed income and equities.

That's operating in the background here, but I would think that that operates on a long time frame. I'm not sure it operates on a one-week horizon, which is what we've just seen. I think all told, I've been somewhat surprised that EM has been so resilient this week.

I think there may be some message in it, but I think overall we had felt and continue to feel that the EM rally that we have seen and built really through the end of the year based on a global cyclical uplift is really quite consensus and somewhat positioned in the near term. I think having that sense that there may be parts of our market which may be a bit over positioned is probably still something in the short term which is right. Aneshka, with that, maybe bring you in to really hone in on that theme.

We've discussed several times in this podcast what is a more structurally bullish view about EM currencies. We argued mid-last year that this long-term cycle had probably turned to a more positive phase after a 14-year bear market for EM currencies. But we've also, earlier this week, taken a step back tactically, and that really is around technical factors.

So can you outline in a bit more detail what are these technical factors and how are we viewing those against this long-term positive view? How do we think we're going to balance those views together? So that's exactly correct.

Our EMFX risk appetite indicator, which is really an agglomeration of a lot of other indicators, it's an index that tries to extract the first principle component from many other things that the market and us look at. This index told us that risk appetite has become overbought, extreme positive. Now in the past, we've always had the experience with this index is that it's quite good at signaling tactical reversals, but actually once the index normalizes, once it goes back to some more neutral levels, it doesn't really change the trend in markets.

Many times we simply see a wobble in a well-established trend. When we look at EM structurally, we still think that many of the arguments that we've put forward in terms of under-positioned asset class at a time when dollar is expensive and U.S. exceptionalism is coming off and a lot of positioning in U.S. assets and an asset class that's supported by a very decent outlook for fundamentals, I think these arguments still hold. But I would say that the index is telling us that there's a lot of consensus around these assumptions.

I must say that anecdotally from my conversations, I do feel there's a lot of consensus. Even us, when we think about this technical signal, we are finding it hard to find catalyst for the opposite narrative. That's actually usually exactly how it feels when a risk appetite is extended.

We literally have that lack of imagination what could go wrong in the story. And at this moment, I honestly can't point to a specific indicator, but that also tells you that it is a consensus. What strikes me as particularly consensus is probably two assumptions behind the rally.

The first one is the cyclical backdrop, which has indeed been very good. And it was one of our key assumptions in 2026. So again, I would emphasize that the structure view that we have agrees with this.

But certainly, let's say when we look at JPMorgan economic activity surprise indices, they've been on all one way and very positive. So this hypothesis has been in recent weeks very much reinforced with no other evidence. Second one is the commodities backdrop.

This idea of metals outperformance versus energy, which is actually really supportive for so many of our countries that we showed in our last monthly publication. I think that's actually also very much core of the consensus. And we also see it in some of the positioning in CFTC data.

You see very short positioning in energy markets and long positioning in precious metals. So the positioning is that way. So that's another core consensus assumption behind it.

Great. Thanks, Aneshka. So that risk appetite index that you mentioned has usually worked pretty quickly to signal a reversal in the direction for EM currencies.

And we pay attention to it almost all of the time. But so far, and certainly this week, it actually hasn't worked very well. And EMFX has held in throughout the volatility and even been rallying as some of that tension has receded.

Is there anything that you think at this point is different and can explain why we've seen maybe some resilience this time? Or maybe it's just a question of it's about to happen? Is there a risk that given that sort of medium-term backdrop of EM currencies versus the dollar or some of the commodity moves that this signal might be less effective?

Or is it exactly as you say, that's exactly the point when it is effective because everyone already believes that? Yes. Is this time difference always the key question?

There are some different factors. There are some different factors all the time that in the past we also tried to point to. Let me start with how, what's the success rate on this index?

The past 10 signals from the index have all delivered a positive return on the bullish and bearish side. Remember that the last few signals that did not deliver positive returns and actually delivered decently negative returns happened during COVID. One on the negative side where the signals, where the index signal that risk appetite is already extreme negative, but actually market price action turned out a lot worse than we could have imagined.

The signal that is extreme negative happened actually quite at the start of COVID. So there was a lot more negative stuff to get through. And the other signal that didn't work was on the other side when we had recovery from COVID.

So that's the kind of environment you get when standard technical indicators do not work. Before that, if you look at the last 22 signals, I tried to look as far as I had time to look at, besides the two COVID signals, another two signals were wrong. So roughly, I would say one in 10 signals is what you have as a failed signal or wrong signal.

So that's roughly the probability we are working here. So it's not nothing. There is some probability that this time is different.

Now what could make this environment different and how much we should put weight on it? So the index that we have has been primarily trained and tested for a period where the dollar was either in a neutralish phase or in a bullish phase. So we have very good data from 2010.

We tried to extend to 2005, but most of this period is a bullish dollar trend. So that is indeed something that we need to consider if something is fundamentally changing with these drivers. Second, the reason the index was pushed so much into positive territory came with aggressive, very large local inflows into the markets, particularly on the equity side, which goes hand in hand with my observation that the cyclical optimism is very widespread.

So that would explain those flows, but certainly it tells you something about the position of EM where it's not received a lot of flows for a very long time. So perhaps we need to readjust expectations to just much larger flows than normally. So these would be the two main objections.

At this moment, I would say I'd rather go with the statistical proven track records, but it is market and we need to be wary that conditions do change. So that's where we stand at the moment. Great.

Thank you. Ben, I guess we need to address probably the same kind of questions for EM credit at the start, maybe even more so because credit is sort of a tail risk type of asset class, but has been pretty resilient. So we had a nearly 3% fall in US equities during the peak Greenland concern so far.

VIX, which is a measure of implied volatility, having hit very low levels of 13 in December jumped to 20, but spreads in EM sovereigns managed a three basis point move, corporates only two, basically just noise. So we did see US high yield spreads widen out a bit. Do you think EM is underreacting or do you think again in EM there's sort of credit, there's this idea maybe there is a reallocation going on, which is helping EM dollar assets because people want to be maybe a bit out of the US fixed income that they've been in?

Or do you think there's any other factors which are helping EM credit? Yeah, no, I think that those narratives make sense. They continue to make sense.

Yes, we basically, as you mentioned, saw EM really hang in there quite well given the level of volatility and we've seen in other markets, the US high yield underperformance was notable. And I don't think there was anything specific that we can attribute to that other than sort of the overall market backdrop. So yeah, EM does look like it's outperformed in terms of the spreads.

I think we do have to kind of go back to the conversation we had last week and just look at it in the context of how we finished last year. So EM sovereigns really did perform extremely well and outperformed when we had some spread volatility in the US high grade in the context of the fourth quarter, I would say ended the year strong when we kind of had a bit of weakness in other spread markets. And we saw a little bit of sort of pullback at the very start of the year, which corresponded with a lot of EM, really record EM issuance, even as those DMIG spreads were coming back.

So I think as we had a little bit of spread widening and maybe what came to be perceived as some better entry levels into this volatility, I think we're in this mentality here where investors are looking at dips as opportunities to add. And I think maybe that's what we got a little bit of that, but what would be driving that overall? I think it's the narratives we've been discussing.

It's comfort with EM fundamentals and EM resilience. I think it is this notion that there's a diversification away, if not purely from dollar denominated assets, away from sort of US domiciled assets. And then this idea of extremely clean technicals and inflows which have been coming in.

So I think these all feel like plausible narratives to me as we start the year. And that's how I would, as you say, week to week, it's always a little bit hard to pin it down. But I think that's what makes sense to me.

Obviously the tighter spreads that we have and we've maintained, as you say, they make us question that maybe there's not great value, but we are seeing and what this is allowing is some of these lower rated sovereigns and countries to return to market, which almost is like the bookend of this default wave that we have had and allowing countries to come and reissue back in markets again. So where are you seeing that happen? Which countries are taking advantage of this window of opportunity at the moment?

This is really something we've seen since the fourth quarter and again, we talk about valuations not being compelling and basically if you compare spreads and yields versus where they're coming from where the tides, but for the very lowest rated segment of our asset class of the VM sovereigns, those tight spreads, especially when we're in a high core rate environment are actually essential to allowing basically the credit narrative, the credit worthiness of the sovereign to remain intact. As you mentioned, we have this default wave in terms of sovereigns. When you fall into default, that can be, as we've seen in this new common framework era, something which can be a long, prolonged, dragged out process with a lot of uncertainty and the idea that that was going to be, basically we might have a wave of sovereign defaults was not a strong selling point for our asset class.

The idea that we have countries now actually tight enough that they can come back and have market access in a regular way, I think is credit enhancing and I think it is supportive overall of VM sovereigns as an asset class which is worthy of diversification and return of inflows. If we start with the fourth quarter, we'd seen basically a number of names of countries which at some point had been effectively priced out of markets in the last couple of years come back and we had between even C-rated but single B-rated issuers almost $7 billion of issuance in the fourth quarter between Angola, Kenya, Nigeria, even Suriname which had been exited default just a few years before. Now, we're seeing countries coming to the market which haven't been in the market for a long period of time.

Ecuador is contemplating buying back bonds, Ecuador hasn't been able to tap the market since before the pandemic and defaulted in 2020. Ecuador had its spreads above 1,000 basis points as recently as June and had yields above 10% as recently as November. So I mean, that's a country which really looked like it had been priced out of markets and has rapidly gotten back into a range where it can contemplate this type of return.

And at Davos, the minister of Pakistan has also talked about his intention to bring his country back to market and they haven't been able to issue since 2022, another country which was really on the verge of distress until it successfully executed an IMF package. Another country which is recently as June of 2025 had yields above 10% which is kind of a level we would say effectively prices you out of markets. So just this rapid, you know, the strong performance by the end of the year allowing spreads to look really tight but allowing countries which otherwise could be in trouble market access again.

Great. Thanks, Ben. And that brings us to the end of this J.P.

Morgan At Any Rate Emerging Market Focus podcast. Thanks to Aneshka and Ben for joining today and thank you all for listening. And we hope to have you back again with us for the next one.

This communication is provided for information purposes only. Please refer to J.P. Morgan Research Reports related to this content for more information including important disclosures 2026.

J.P. Morgan Chase & Company rights reserved. This episode was recorded on the 22nd of January, 2026.

EM Fixed Income: A technical signal amid all the noise

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EM Fixed Income: A technical signal amid all the noise

What the desk is arguing

Where it sits in our coverage

How other firms see it

Sources & References

Primary source