“Certainly conditions are in place for the bull market in bonds to be over,” Ashok Varadhan, Goldman Sachs’ global co-head of the Securities Division says. “The catalysts that have spurred the dramatic rise in bond yields over [the last three decades] — globalization, disinflation, central banks’ zero-interest rate policies and their nominal bond buying programs, regulations and fiscal retrenchment — may all be on the cusp of changing.” Varadhan believes the Bank of Japan’s efforts to keep Japanese government bond (JGBs) yields near zero are the main reason behind the depressed overall bond yields globally as “Japanese savers are buying US Treasuries instead of JGBs.” One thing investors might be underestimating, Varadhan says, is the impact on emerging markets (EMs). He says EMs have been “huge beneficiary of the global bond bull run. If all the factors that have supported bonds start to reverse and if inflation and interest rates in developed markets start to rise, that could put pressure on EMs. If the manifestation of a trade war is a forced devaluation in EM currencies or one in which we see aggregate demand slow because of added tariffs, locally denominated currency debt could come under pressure.

One fund that plowed deeper into emerging and frontier markets in 2016 was Norway’s USD 900 bnGovernment Pension Fund Global, according to Bloomberg. The fund, which announced a return of 6.9% in 2016, gaining approximately USD 53 bn, says emerging market holdings were USD 92 bn by the end of 2016 and accounted for 10% of its investments. The fund, known for its transparency, says its equity investments returned 8.7%, fixed income investments 4.3%, and real estate investments 0.8%. By the end of 2016, the fund was investing 62.5% of its capital in equities, 34.3% in fixed income, and 3.2% in real estate.