The instability of the Coronavirus is hitting risky assets all over the world, but most of the local-currency debt in emerging markets has held adequately so far.
Argentine and Indian bonds are among the biggest winners this month, boosted by the prospect of central bank support.
The average yield on emerging market bonds in local currency fell to 3.85 percent this week from a high of 4.7 percent in May last year, as investors tried to put money into fixed income assets, according to the Barclays Global EM Local Currency Bloomberg Bond Index.
The indicator has only fallen 0.1 percent in February in dollar terms, after recovering 2.4 percent during the previous two months.
"Most emerging market bond yields are lower given the expectation that central banks will employ a more moderate monetary policy stance in the current uncertain market environment," pointed Karan Talwar, senior investment specialist for emerging market debt at BNP Paribas Asset Management in Hong Kong.
"This is also helped by the fact that inflationary pressures in most economies are relatively benign, allowing central banks to support the economy,” he added.
Argentine bonds lead the way, with a 9.6 percent return in February, according to the Bloomberg Barclays index. The nation's sovereign debt has recovered as the central bank has cut interest rates seven times in less than two months to restore growth.
Among other high-yield players, India's debt has given investors a 2.3 percent gain as policymakers injected funds for local banks and introduced unconventional debt purchase measures such as "Operation Twist" to reduce yields.
Bonds from the Philippines and Thailand have also generated positive returns, helped by central bank support.
The decline in emerging market debt yields has largely offset the impact of weakening exchange rates on investors.
Argentine and Indian bonds have been among the best performers despite the peso falling 2.9 percent this month, while the Indian rupee has fallen almost 1 percent.
Not all debt markets in developing economies have escaped the current market chaos unscathed. Bonds in Turkey and Brazil passed on losses to investors, largely due to their weakened currencies.
Turkish bonds lost 8.3 percent as the Lira fell 4 percent, while stocks in Brazil, the worst performing currency this month, fell 3.9 percent.
While there are broader macro drivers at play, each country has its own idiosyncratic factors that will drive asset prices, said Talwar of BNP Paribas Asset, which oversaw US$484 billion at the end of last year.
"If the situation around Covid-19 continues to worsen, these trends of lower bond yields and depreciation of emerging market exchange rates will continue," he indicated. "However, a stabilisation of the situation is likely to see a reversal of this trend.”
by Lilian Karunungan, Blomberg