(Bloomberg) -- Emerging-market bonds extended a rout, with currencies and stocks heading for four-month lows, as investors dumped higher-yielding assets amid speculation Donald Trump's spending plans may push up U.S. inflation and interest rates.
Ten-year sovereign notes in Russia and Turkey tumbled, sending yields toward the highest in June and February, respectively. Investors turned the most bearish in three months on developing-nation debt. Stock volatility surged as benchmark indexes in Indonesia, India and South Africa fell at least 1.8% each. Mexico's peso extended a record low. South African credit-default swaps were poised for the biggest three-day jump this year. Central banks in Indonesia and India were said to intervene to support their exchange rates.
Local-currency bonds in emerging markets are on course for a sixth week of losses, the longest streak on record, as investors speculate that Trump will add stimulus that will hasten inflation and lead to more frequent interest-rate hikes by the Fed. Futures indicate an 80% probability of a move next month and expectations are rising for further increases. The bearish outlook for bonds pulled down currencies, and echoed in the equity market where investors have withdrawn $172 billion this month.
"We may be entering a prolonged period of volatility as nobody really knows what's going to happen," said Nathan Griffiths, who helps oversee about $1.1 billion as a senior money manager at NN Investment Partners in The Hague. "If Mr. Trump's spending plan leads to faster growth and thereby faster inflation, it would be negative for bonds. If his tax cuts pressure the fiscal position of the U.S., that would be negative too."
The MSCI Emerging Markets Index declined 2.5% to 854.03, the lowest level since July 13. The gauge pared its 2016 rally to 7.6%, half of the gains two months ago. The measure of currencies lost 0.8%.
- Turkish 10-year yields jumped 24 basis points, taking the increase this week to 47 basis points.
- Rates on similar-maturity Russian notes jumped 21 basis points on Friday, or 44 points in the past three days.
- The premium investors demand to own developing-nation government bonds over U.S. Treasuries widened seven basis points to 356, the highest since Aug. 4, according to JPMorgan Chase indexes.
- U.K.-listed asset management companies that invest in emerging markets tumbled in the London Stock Exchange, with Ashmore Group and Aberdeen Asset Management losing at least 4.6% each.
- Mexico's peso fell 1.5%. The currency has lost 12% in the past three days on concern Trump may renegotiate or abandon the nation's trade deal with the U.S.
- Indonesia's rupiah fell as some traders stepped up hedging via non-deliverable forwards. The monetary authority was in the market to stabilize the rupiah, said Nanang Hendarsah, head of financial market deepening at Bank Indonesia.
- Ukraine's Eurobonds maturing in 2019 fell for a third day, pushing the yield up 135 basis points this week, the biggest since new notes were issued in a restructuring last year
A U.S. ETF with $28 billion of assets witnessed the biggest single-day outflows since January 2011, according to data compiled by Bloomberg. Investors withdrew $1.57 billion from the iShares MSCI Emerging Markets ETF on Thursday. However, the Vanguard FTSE Emerging Markets ETF, which manages about $45 billion, received $182 million of new deposits yesterday.