Emerging Markets See Surge in Local Currency Debt as Dollar Weakens

Economic

Forex

Summary:

A weakening U.S. dollar is helping lift emerging market local currency debt from a decade-long drought, with record inflows into bond funds. This shift reflects changing investor preferences, as a weakening dollar...

Emerging Markets Local Currency Debt: A Potential Turning Point

Emerging market local currency bonds are experiencing a revival after years of stagnation, with inflows into bond funds reaching record levels. For the first time in years, these markets are witnessing a resurgence of interest, with the JPMorgan GBI Emerging Market local currency index at its lowest yields since 2022. As a result, emerging market local currency government bonds have seen returns exceeding 10% this year, outpacing the 4% return from hard-currency bonds.

The key drivers behind this resurgence are global shifts in economic conditions. The U.S. dollar, which had been a dominant global reserve currency, recently fell to its lowest point in over three years, prompting investors to seek higher returns in other markets. In particular, the weakening dollar and lower global interest rates are fueling demand for local currency bonds in markets like Brazil, Mexico, Indonesia, and India.

Reversal of Dollar Bull Market Trend

For over a decade, the global market has favored U.S. assets, driven by the "U.S. exceptionalism" trade. This trend saw foreign investors flocking to U.S. equities and bonds, bolstered by a strong dollar. However, as the dollar weakens, emerging market bonds are becoming more attractive. Investors are seeking better yields, especially as slower global growth and the likelihood of lower rates in developed markets reduce the returns available in traditional markets like the U.S. and Europe.

This shift has been described by market analysts as the end of a 14-year period during which emerging market local currency bonds were largely neglected. With the asset class now valued at approximately $13 trillion—double its size from 14 years ago—investors are beginning to revisit emerging markets in search of diversification and better returns.

Factors Supporting the Shift: Central Banks and Market Conditions

The current favorable environment for local currency bonds in emerging markets is driven by a combination of factors. Many emerging market central banks are cutting rates, which contrasts with the mixed outlook for rate cuts from the U.S. Federal Reserve. This divergence, along with the drop in the U.S. dollar, has created a "Goldilocks" moment for emerging markets, making local bonds increasingly attractive.

Countries like the Philippines, Czech Republic, Hungary, South Africa, and Brazil are highlighted as offering compelling value for investors looking for opportunities in emerging markets. Even small flows into these markets are expected to have a significant impact, given the smaller size of emerging market assets compared to U.S. assets.

While the flows into emerging market local currency bonds remain small, they represent a significant shift in investor sentiment. According to analysts, this shift could lead to steady, long-term growth for emerging market debt, with many expecting double-digit returns by the end of the year. Despite the gradual nature of this trend, the impact of these flows in the context of global capital markets could be meaningful, providing a boost to the asset class and signaling the end of a long period of neglect.

Source: Reuters

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Daniel Carter

Political

Middle East Situation

Key Points:

● Israeli airstrike kills Iran's military chief, Ali Shadmani, in Tehran.

● Linked to broader tactics disrupting Iran's command structure.

● No direct cryptocurrency impact observed relating to the strike.

Ali Shadmani, Chief of Staff of Iran's Armed Forces, was killed by an Israeli airstrike in Tehran on June 17, as confirmed by the Israel Defense Forces (IDF).

This assassination is part of Israel's ongoing strategy targeting Iran's military leadership, potentially affecting Middle East stability but not directly impacting crypto markets. According to a statement by the Israel Defense Forces, "The targeted killing of Shadmani marks another critical blow to Iran's military command structure amid ongoing hostilities and follows a series of recent assassinations aimed at dismantling the upper echelons of the Iranian armed forces. Israeli officials have described the operation as part of a broader strategy to disrupt Iran's ability to wage coordinated attacks in the region."

Israeli Tactics: Disruption of Iranian Military Leadership

The Israeli airstrike on June 17 resulted in the death of Ali Shadmani, Iran's Chief of Staff, in a rare precision attack in central Tehran. Israeli officials emphasized the operation as disrupting Iran's military capabilities.

These targeted killings continue a pattern over recent days, with Israel aiming to weaken Iran's leadership. Such operations are part of a broader regional security strategy amid escalating tensions.

Did you know? The targeted killing of military chiefs often marks shifts in regional power dynamics. Historically, similar actions have occasionally sparked transient volatility in global markets, yet current assessments suggest crypto markets remain stable.

Cryptocurrency Market Stability Amid Escalating Geopolitical Tension

Bitcoin currently prices at $106,979.35, with its market cap reaching $2.13 trillion and market dominance holding at 63.95%. Despite geopolitical events, Bitcoin's 24-hour trading volume soared to $53.80 billion with a moderate 0.26% increase over the same period. Price changes over 60 and 90 days indicate notable rises of 26.40% and 28.61%, respectively.

Bitcoin(BTC), daily chart, screenshot on CoinMarketCap at 06:44 UTC on June 17, 2025.

Experts suggest that while geopolitical tensions might spark sporadic volatility, the broader crypto ecosystem remains largely insulated from such military escalations, focusing instead on regulatory shifts and technological advancements in blockchain.

Source: CryptoSlate

Risk Warnings and Disclaimers

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Gerik

Economic

Commodity

Growing Demand for Gold Among Central Banks

According to the WGC's survey, central banks around the world are planning to increase their gold holdings over the next five years. This marks a significant shift, as 76% of the 73 central banks surveyed indicated that they expect to hold more gold, a rise from 69% the previous year. The survey, which was conducted between February 25 and May 20, also showed that nearly three-quarters of central banks believe their dollar reserves will decrease over the same period, a notable increase from 62% in 2024.

Central banks have consistently bought over 1,000 metric tons of gold annually in the last three years, a sharp rise from the 400-500 ton range in the previous decade. This trend reflects growing geopolitical and economic uncertainty, with central banks turning to gold as a more stable and reliable asset during volatile periods.

Gold's Performance Amid Crisis and Geopolitical Uncertainty

Gold's appeal has been strengthened by its performance during times of crisis, such as the geopolitical tensions following Russia's invasion of Ukraine. Since February 2022, gold prices have surged, hitting an all-time high of $3,500 per ounce in April 2025, marking a 95% increase since the war began.

For central banks, gold is not only seen as a hedge against inflation but also as an essential tool for portfolio diversification. These factors are prompting many central banks, particularly those in emerging markets, to prioritize gold accumulation.

Geopolitical Risks and Trade Conflicts Impacting Reserve Management

The WGC survey also revealed that 59% of central banks are concerned with potential trade conflicts and tariffs, which are influencing their reserve management strategies. Emerging markets, in particular, have been more vocal about these risks, with 69% of central banks in developing economies citing them as significant factors, compared to only 40% in advanced economies.

The survey confirmed that the Bank of England remains the preferred location for central banks' gold reserves. This further underscores the growing global trend of accumulating gold while reducing dependence on the U.S. dollar.

In conclusion, central banks are shifting towards gold as a safer, more stable asset amid rising global uncertainties. The WGC's findings suggest this trend is set to continue, with gold playing an increasingly pivotal role in global reserve management.

Source: Reuters

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Risk Warnings and Disclaimers

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Gerik

Economic

Japan’s Debt Burden Meets Market Volatility

Japan’s debt-to-GDP ratio—currently around 250%, the highest among developed economies—has long been a structural vulnerability. While much of the debt is domestically held, recent developments have reignited concern. A combination of weak bond auction results, fading demand from traditional buyers like life insurers, and global investor apprehension about sovereign debt have sent yields on super-long JGBs surging. In particular, the 40-year yield jumped to a record 3.675%, with 30-year and 20-year bonds also hitting multi-decade highs.

This pressure is further magnified by the government's proposed fiscal stimulus ahead of July’s upper house elections, including potential cash handouts. These promises contribute to fears of worsening fiscal discipline.

BOJ's Cautious Retreat from Ultra-Loose Policy

The BOJ had been steadily reducing its monthly bond purchases—known as quantitative tightening—by 400 billion yen each quarter under a plan announced in July 2024. That pace will now be halved to 200 billion yen reductions per quarter starting in April 2026. For the current quarter, bond buying stands at 4.1 trillion yen per month.

This recalibration suggests a more gradual exit from monetary stimulus, aiming to avoid destabilizing markets. Governor Kazuo Ueda signaled that the bank is concerned about how super-long yield spikes could spill into shorter maturities, which have more direct effects on borrowing costs for households and businesses.

Shifting Investor Landscape and Fiscal Tools

The structural shift in demand is partly driven by regulatory-driven behavior. Life insurers, who were once major buyers of super-long JGBs to meet solvency needs, are now pivoting toward higher-yield assets. This transition has removed a major source of steady demand for long-dated bonds, leaving auctions vulnerable.

Moreover, the Japanese finance ministry is now taking a more active role. It plans to reduce the issuance of 20-, 30-, and 40-year bonds while increasing supply of shorter maturities. There are also discussions of introducing floating-rate debt and expanding bond access to unlisted companies and retail investors, aiming to deepen domestic demand and reduce dependency on volatile foreign inflows.

Geopolitical and Global Policy Backdrop

Japan’s bond market volatility does not exist in a vacuum. Global markets have turned cautious in the face of rising debt burdens across the U.S. and Europe. Moody’s recent downgrade of U.S. debt sent ripples through bond markets, amplifying scrutiny on countries like Japan with towering public liabilities.

Additionally, BOJ policy decisions are taking place amid escalating geopolitical uncertainty, particularly in the Middle East and with U.S. trade tariffs. These risks reinforce the bank’s preference for stability over aggressive policy tightening.

Market Confidence and Key Test Ahead

The next major milestone will be the 20-year JGB auction on June 24, which will test whether recent measures to calm markets are working. The BOJ’s message is clear: while it aims to unwind stimulus and control inflation, it must do so without jeopardizing market confidence or fiscal credibility.

Ultimately, the BOJ’s recalibrated taper reflects a delicate balancing act. It must juggle inflation control, market stability, and the government’s mounting fiscal obligations—all while navigating a shifting global investment landscape and fragile investor confidence in long-term Japanese debt.

Source: Reuters

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Risk Warnings and Disclaimers

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Gerik

Economic

Bullish Momentum Returns to Asia

From June 6 to June 12, hedge funds rapidly ramped up their activity in Asia, marking the largest volume surge in over five years, as revealed in a Goldman Sachs report published Friday and reviewed Tuesday by Reuters. During this period, net long positions surged, with bullish trades decisively outweighing bearish bets. The increase in buying suggests renewed conviction in Asia's growth potential.

Notably, funds increased exposure to equities in Japan, Hong Kong, Taiwan, and India, while taking short positions in onshore Chinese stocks — suggesting selective confidence tied to geopolitical and macroeconomic undercurrents.

Trade Talks and Elections Boost Sentiment

This renewed investor enthusiasm coincides with high-level trade talks between the U.S. and China in London, which have sparked optimism of a thaw in tensions that have weighed on global supply chains and capital flows. Furthermore, South Korea’s recent election of a market-friendly president has injected fresh confidence, catalyzing foreign inflows into Korean equities.

The MSCI Asia-Pacific Index has reflected this enthusiasm, climbing 2.5% in June alone, led by Korea and Taiwan. Since April 7, the index has risen 24%, buoyed by a 90-day tariff moratorium from the U.S. and stronger-than-expected corporate earnings across the region.

Rotation From Dollar Assets to Asia

Goldman Sachs also noted that the share of developed Asia markets in total hedge fund exposure hit 9%, placing it in the 94th percentile historically. This rotation is partly explained by the global trend of de-dollarization, as weakening expectations for the U.S. dollar lead funds to seek alternative regional opportunities. According to Kier Boley, CIO at UBP Alternative Investment Solutions, international investors are re-evaluating previously overlooked markets like Asia in light of shifting macroeconomic dynamics.

While risks remain, especially in China where structural challenges persist, the momentum in Asia’s equity markets underscores a broad shift in hedge fund sentiment. If trade negotiations continue progressing and political stability strengthens across key Asian economies, this could mark the beginning of a more sustained capital rotation into the region, positioning Asia as a new center of post-tariff investment optimism.

Source: Reuters

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Risk Warnings and Disclaimers

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Gerik

Economic

BOJ Holds Steady, Prioritizes Stability Over Aggression

At the conclusion of its two-day policy meeting, the BOJ confirmed expectations by maintaining its short-term interest rate at 0.5%, reaffirming its gradual approach to tightening monetary policy. The central bank also announced that it will slow its bond tapering process from April 2026 onward, aiming to reduce monthly bond purchases by 200 billion yen per quarter. By March 2027, total monthly purchases are projected to decline to approximately 2 trillion yen.

This decision leaves the current tapering plan in place through March 2026, suggesting that any aggressive rollback of stimulus is off the table for now.

Gradual Normalization Amid Global and Domestic Pressure

The BOJ's cautious approach highlights its concerns over both external risks—such as Middle East tensions and U.S. tariff actions—and domestic uncertainties like wage growth and inflation trends. While Japan has seen inflation hover just above the 2% target, Governor Kazuo Ueda has signaled the need for stability before initiating any substantial tightening.

The Japanese bond market has experienced volatility, particularly in ultra-long government bonds (JGBs), prompting the central bank to ease the pace of normalization to avoid destabilizing the market. By carefully phasing its taper over multiple fiscal years, the BOJ appears focused on protecting bond yields from sudden spikes, which could impair fiscal sustainability and investor confidence.

Market Reaction and Outlook

Markets reacted moderately to the announcement. The 10-year JGB yield inched up to 1.465%, while the yen remained flat at 144.80 per dollar, indicating limited surprise. Investors now await Governor Ueda's 3:30 p.m. (0630 GMT) press conference, where further guidance may be offered on future rate hikes or taper adjustments.

Overall, the BOJ continues to strike a delicate balance: acknowledging inflationary pressure without undermining financial market stability or derailing Japan’s still-fragile economic recovery. Further moves, particularly any interest rate increases, are likely to hinge on geopolitical developments, wage trajectories, and global central bank trends.

Source: Reuters

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Gerik

Economic

Bangkok Races Against Time as Tariff Moratorium Nears Expiry

In a move to prevent a potentially damaging tariff increase, Thailand announced it will submit a formal trade proposal to the United States within the week. The country faces the risk of a 36% tariff on its exports if the current moratorium, which shields Thai products from punitive duties, is not successfully renegotiated before its July expiration.

Finance Minister Pichai Chunhavajira stated on Tuesday that technical-level discussions will begin online this week, with the formal proposal aligned with pre-announced trade criteria. These include addressing trade imbalances, enhancing U.S. market access, and preventing transshipment violations, while also encouraging Thai investment projects that generate employment in the U.S..

Digital Diplomacy to Lead the Way

According to Pichai, the first phase of negotiation will be conducted virtually, and any face-to-face meetings will be considered based on progress in the preliminary rounds. This approach underlines the urgency of maintaining diplomatic momentum while navigating logistical challenges.

Thailand’s earlier informal proposal, submitted in May, emphasized collaborative economic measures that benefit both sides. The formal version, to be submitted after this week’s talks, is expected to provide more concrete commitments to rebalance bilateral trade and support U.S. economic interests.

Strategic Context: U.S. Trade Pressure and Thai Economic Priorities

This development comes amid broader U.S. efforts to tighten trade rules and enforcement, particularly in Southeast Asia, to combat transshipment and protect domestic industries. Thailand, a significant exporter of electronics, automotive parts, and apparel, could suffer substantial economic setbacks if subjected to steep tariffs.

For Bangkok, avoiding the tariff is not only an economic imperative but a geopolitical one, as it seeks to remain a stable U.S. trade partner while balancing its ties with regional giants like China. The Thai government is also under domestic pressure to maintain export competitiveness and economic stability amid global uncertainty.

With the July deadline approaching fast, the success of these talks may depend on how convincingly Thailand can demonstrate compliance, reciprocity, and economic alignment with U.S. trade priorities.