Although the tone of this week’s FOMC statement suggests the US central bank is unlikely to taper its asset purchases imminently, we still think dollar-denominated emerging market (EM) government bonds are vulnerable to an eventual scaling back of unconventional policy stimulus. We forecast the spread of the JP Morgan EMBI+ Index (EMBI+) over US Treasuries to rise to 325bp by year-end (from 273bp now) and to 350bp in 2014.
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