HanYa Investment stated in its article that the Federal Reserve will raise interest rates 11 times between March 2022 and July 2023 to curb inflation, and then pause the rate hikes in July 2023. The market interpreted this as a sign that interest rates have peaked, and are expected to rise in the last quarter of 2023. Bonds rebounded strongly, with the yield on 10-year Treasury bonds falling by 69 basis points. HanYa Investment believes that the market enthusiasm has subsided. Recent data shows that U.S. inflation remains high but is gradually slowing down, leading to hopes in the market for a rate cut by the Fed in June. At the same time, most of the gains made by bonds since December 2023 have disappeared, and the yield on 10-year Treasury bonds has risen to 4.1%. Given the environment of high long-term interest rates, bonds may experience volatility again. However, it is worth noting that some segments of the fixed income market have produced strong total returns (coupon increases plus capital gains) over the past year. Generally, higher-risk bond markets have benefited more than investment-grade bond markets. The total return of global emerging market bonds is strong and particularly attractive to investors. In 2023, the J.P. Morgan Emerging Market Bond Index Global Diversified Index, which tracks total returns of U.S. dollar-denominated bonds issued by EM sovereign and quasi-sovereign entities, has risen by 11.1%, compared to only 9.1% for other bond indices. Once the Fed begins to ease its policy, EM bonds will continue to have the potential to achieve double-digit returns. The bank's investment thesis is based on several reasons. Asynchronous interest rate cycles in different regions In order to curb inflation, Latin American countries initiated a tightening cycle in March 2021, one year earlier than the U.S. Chile and Mexico raised rates to 11.25%, while Brazil's rates reached 13.75%, resulting in higher coupons. Due to taking action earlier than the U.S., Chile and Brazil have been able to slow down inflation, allowing their central banks to start easing policy in the second half of 2023. As rates decline, capital gains increase overall bond returns. Although Latin America is still fighting inflation, once the Fed begins to ease its policy, the pace of rate cuts in the region should accelerate within the year. Additionally, after two years of significant monetary tightening, Latin American central banks may aim to achieve rate normalization. In Asia, inflation is also falling; according to the International Monetary Fund, the average inflation rate in Asia dropped from 3.8% in 2022 to 2.6% in 2023. However, since Asia has lower inflation pressures, Asian central banks do not need to take as aggressive measures to tighten monetary policy as some central banks in other regions. In fact, in the second half of 2023, the U.S. federal funds rate surpassed the average policy rate in Asian emerging markets. Although the inflation environment is favorable, Asian central banks are unlikely to cut rates earlier than the Fed. Once the Fed starts easing policy, they will have greater room for rate cuts. Meanwhile, interest rate hikes in the Middle East, Eastern Europe, and Africa have been relatively small, and with inflation issues unresolved, they cannot cut rates. Moreover, market pricing appears to have anticipated a 75 basis point rate cut in the U.S. in 2024, and a 70 basis point cut in Europe. However, investors still have the opportunity to achieve desirable returns over a 24-month period; the average rate cut by the U.S. over a 24-month period of easing cycles has ranged between 200 and 300 basis points. Based on this historical view, adopting longer investment terms can bring greater returns for bond investors. Favorable fundamental and technical factors Global economic growth is estimated to be 3.1% in 2023, and the growth rate is expected to remain the same in 2024, before slightly increasing to 3.2% in 2025. The growth rate of advanced economies is expected to slightly decrease to 1.5% in 2024, then rebound in 2025, while emerging market economies are expected to achieve stable and high growth in 2024 and 2025, with growth reaching 4.1%. Due to these differences in economic growth, along with increased fiscal prudence this year, some Latin American countries and Eastern Europe, the Middle East, and Africa regions are expected to see credit rating upgrades--all factors that benefit global emerging market bonds. Ultimately, improvements in credit quality will lead to funds flowing from developed markets to emerging markets. Once central banks in developed markets start cutting rates, investors may shift funds from money market assets to other asset categories to seek better returns. Within the bond market, global emerging market bonds are most likely to benefit from these capital flows. Currently, the size of U.S. money market funds is about $6 trillion. Even if only a small portion of these funds flow into global emerging market bonds, it will be a significant technical driver for their performance. High yield spreads sufficient to cushion risks As a result of pricing pressure caused by the COVID-19 pandemic, the Russia-Ukraine war, and defaults in some countries, emerging market yields have risen to 10-year highs. With prospects improving, the current average yield of 7.9% provides sufficient cushion for market volatility caused by geopolitical risks. A positive outcome in the ongoing wars in the Middle East and Europe would be a favorable factor for global emerging market bonds. Active fund managers face rich opportunities Investors can capture opportunities in over 70 countries in the field of global emerging market bonds, achieving diversified investments covering various hard currency and local currency bonds, sovereign and corporate bonds, industries, credit qualities, and durations. Given the differences in interest rate cycles across emerging markets, investors can significantly boost yields. In the environment of global easing cycles, duration may also be an attractive strategy. Currently, the duration of the J.P. Morgan Global Emerging Market Government Bond Index is about 7 years, while the duration of the J.P. Morgan Global Emerging Market Corporate Bond Index is significantly shorter, at only 4 years. Locking in higher yields now is an ideal strategy that can lead to higher returns over a longer period.Benefiting from higher interest rate spreads.Another attractive feature of the global emerging markets is the relative safety and liquidity of this asset class, providing investors with opportunities to participate in market upswings. Additionally, anticipated credit rating upgrades in some emerging market countries are expected to increase overall returns. Overall, the outlook for global emerging market bonds seems brighter. The returns that investors can potentially gain from taking on emerging market risks are expected to be higher than in the past 10 years, making it an ideal time to buy global emerging market bonds.