Emerging-market debt hit hard as risk sentiment shifts

Emerging-market local-currency bonds have seen a decline of over 4.5% as global risk sentiment worsens, particularly following the Iran conflict. Currency weakness and rising oil prices are driving inflation expectations higher, prompting central banks to reconsider rate cuts. Countries like South Africa and Hungary have experienced significant losses, while others like Mexico and Indonesia remain unstable. Investors are adjusting strategies, reducing exposure to volatile currencies and favoring regions with better inflation management. In contrast, Colombia's local bonds have performed better due to already priced-in tighter policies. This situation underscores the rapid shifts in investor sentiment in emerging markets.