TY - BOOK ID - 138521905 TI - Drivers of Emerging Market Bond Flows and Prices AU - Papageorgiou, Evan. AU - Goel, Rohit. PY - 2021 SN - 161635710X PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Foreign exchange. KW - Monetary policy. KW - Balance of payments KW - Bonds KW - Capital flows KW - Capital market KW - Capital movements KW - Currencies KW - Currency crises KW - Economic & financial crises & disasters KW - Economic sectors KW - Economics of specific sectors KW - Economics KW - Economics: General KW - Emerging and frontier financial markets KW - Exports and Imports KW - Finance KW - Finance: General KW - Financial crises KW - Financial institutions KW - Financial markets KW - Financial services industry KW - Foreign Exchange KW - General Financial Markets: General (includes Measurement and Data) KW - Government and the Monetary System KW - Informal Economy KW - Informal sector KW - International economics KW - International Investment KW - Investment & securities KW - Investments: Bonds KW - Long-term Capital Movements KW - Macroeconomics KW - Monetary economics KW - Monetary Systems KW - Money and Monetary Policy KW - Money KW - Payment Systems KW - Regimes KW - Securities markets KW - Standards KW - Underground Econom KW - China, People's Republic of UR - https://www.unicat.be/uniCat?func=search&query=sysid:138521905 AB - An interesting disconnect has taken shape between local currency- and hard currency-denominated bonds in emerging markets with respect to their portfolio flows and prices since the start of the recovery from the COVID-19 pandemic. Emerging market assets have recovered sharply from the COVID-19 sell-off in 2020, but the post-pandemic recovery in 2021 has been highly uneven. This note seeks to answer why. Yields of local currency-denominated bonds have risen faster and are approaching their pandemic highs, while hard currency bond yields are still near their post-pandemic lows. Portfolio flows to local currency debt have similarly lagged flows to hard currency bonds. This disconnect is closely linked to the external environment and fiscal and inflationary pressures. Its evolution remains a key consideration for policymakers and investors, since local markets are the main source of funding for emerging markets. This note draws from the methodology developed in earlier Global Financial Stability Reports on fundamentals-based asset valuation models for funding costs and forecasting models for capital flows (using the at-risk framework). The results are consistent across models, indicating that local currency assets are significantly more sensitive to domestic fundamentals while hard currency assets are dependent on the external risk sentiment to a greater extent. This suggests that the post-pandemic, stressed domestic fundamentals have weighed on local currency bonds, partially offsetting the boost from supportive global risk sentiment. The analysis also highlights the risks emerging markets face from an asynchronous recovery and weak domestic fundamentals. ER -