What I Learned This Week

How long will the current rally in the dollar continue? Argentina and Turkey may provide important clues.

One could argue that is the message being sent by the iShares JPMorgan Emerging Markets Bond ETF (EMB, $107.35), which began to break down on April 16th—when the U.S. Dollar Index (DXY) began its recent upward spike. When emerging market-borrowers laden with dollar-denominated debt encounter financial stress, their currencies weaken against the dollar, making it harder to service and roll-over those debts, causing bond prices to fall and yields to rise. Ranked by issuer, the governments of Argentina and Turkey own the top two weights in EMB, at 4% each. And, ranked by geography, these two countries are in the ETF’s top-five. S&P cut Turkey’s debt rating further into junk territory last…

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