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>>> Corporate & Emerging Market Bonds

Corporate bonds had to endure higher funding costs than previously anticipated during 2024 as central banks fought
to combat sticky inflation. This translated to strong demand for high-yield issuance, particularly Chinese assets given
expected trade wars.
We also started to observe borrow demand for automakers Emerging market bonds received a boost during the start
with a number of short positions in place. With declining of the period as the Federal Reserve cut interest rates
European auto sales and the shift to electric vehicles, by an outsized 50bps in September, temporarily buoying
borrowers sought corporate bond issuance of Porsche, sentiment. However, the re-election of President Trump
Volvo and Volkswagen, for example. Furthermore, with posed significant political risks across emerging markets.
political and economic uncertainty across the globe, the US policy will likely see higher and more volatile rates
trend of credit financing has continued. In short, asset than previously, while sentiment towards non-US assets
owners such as LDI funds have increasingly sought to use remained downbeat. President Trump came to power
corporate bonds in repo and securities finance transactions promising tariffs of up to 60% on goods imported from
as a funding tool to guard against forced liquidations. This China, and a 20% levy for other countries. The Mexican
allows portfolio managers to promptly raise cash to meet peso came under pressure as tariffs would hit particularly
margin obligations rather than selling gilts and other long- hard given it is the US’ largest trading partner. Additionally,
term bond positions. many US automakers have their main production centres
in Mexico, something the President has labelled a “serious
threat” to the US. Chinese assets have also been caught in
the stampede into “Trump trades”, with economic growth
expected to slow, while a surging US dollar acted to push
some Asian currencies to 20-year lows. ISLA 32nd Annual Securities

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