Rising U.S. Bond yields: the First Bomb in the Financial Market in 2021 - Part 6

Bethany Walsh

Nov 22, 2021

(3) Impact on some emerging market economies

On March 18, the central banks of Turkey and Brazil announced interest rate hikes. The next day, the Central Bank of Russia launched the same announcement. The market expects that the central banks of some other emerging market economies are also on the way to raising interest rates. The main reasons for interest rate hikes in emerging market economies are inflation and capital outflows, which may be affected by the rise in U.S. bond yields.

The economic and financial situation of some emerging market economies is not optimistic. The scale of foreign debt continues to increase, coupled with the rise of inflation, the risk increases. The increase in U.S. bond yields then hit emerging markets. Capital outflows seek a stable high yield, which has put pressure on the currencies of emerging markets. The pressure forces them to increase interest rates to suppress inflation and improve their attraction to capital, despite that the interest rate increase may not be appropriate for the economy.

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