Emerging market shares fell on Tuesday, pressured by a rise in US bond yields ahead of March inflation data, while Sri Lankan bonds rose after the central bank temporarily suspended foreign debt payments to avoid a hard default.
Sovereign dollar bonds in crisis-hit Sri Lanka fell more than one cent after the central bank decided to divert its limited foreign reserves for imports of essential items such as fuel instead.
Better mechanisms for dealing with sovereign debt stress will be needed to stave off defaults in poor countries, the International Monetary Fund said on Monday.
Fitch on Tuesday warned Pakistan’s political volatility adds to external financing risk.
Pakistan bonds fell after Monday’s rally following the appointment of Shehbaz Sharif as prime minister. Stocks rose 0.1%, extending the previous session’s near 4% jump, while the currency jumped more than 1%.
Later on Tuesday, data is expected to show US consumer prices increased by the most in 16-1/2 years in March, serving as the latest prompt to strengthen the Federal Reserve’s hawkishness.
US Treasury yields hit 3-year highs, helping the dollar hold strong. Emerging market currencies made muted moves.
“With real yields heading higher, and the Fed now decisively turning hawkish… the scope for relative-value trades in EM FXis now looking diminished,” strategists at JPMorgan said in a note.