Borrowing costs in emerging markets sank to record lows as Japan’s unprecedented monetary easing spurs demand for higher-yielding assets.
The average yield on developing-nation local-currency debt tracked by JPMorgan Chase & Company has fallen by 16 basis points since April 3, the day before the Bank of Japan expanded its asset- purchase program, to an all-time low of 5.39 per cent on Wednesday.
Bloomberg News reported that 10-year government yields dropped to levels not seen before in Mexico, the Czech Republic, Poland and South Africa this week, while comparable rates in South Korea and the Philippines touched all-time lows in the past month.
The BOJ said last week it will buy $75bn of bonds a month and double its monetary base in two years, driving the yen to a four-year low and 10-year yields in Asia’s second-biggest economy to as little as 0.33 per cent.
Notes due in a decade pay 9.62 per cent in Brazil, 7.9 per cent in India and 6.78 per cent in Russia.
The JPMorgan GBI-EM Global Diversified Composite Index has returned 10 per cent in yen terms over the past five days, the steepest gain since April 2009.
“With the depreciating yen, funds will continue to flow into emerging markets to take advantage of their higher yields and growth,” said Hideki Hayashi, a specially appointed fellow at the Japan Center for Economic Research in Tokyo.
“Demand seems to be quite strong for countries like Turkey and Mexico that have solid economic outlooks.”
The BOJ has joined global central banks in easing monetary policy to revive growth. The US Federal Reserve is buying $85bn of government and mortgage debt a month, while the European Central Bank is considering using both standard and non-standard policy tools to stimulate the economy.
“If you combine what the Fed and the BOJ are doing, you are talking about $160bn a month of reserves being injected into the system,” Steven Englander, a currency strategist at Citigroup Inc. in New York, said in a phone interview.