Even though EM domestic bond yields have fallen to their previous lows, they may still have further to fall.
E merging market (EM) bond yields are now at their 2008 lows, but countries the EM universe will continue to ease monetary policy in response to slumping growth both globally and domestically.
One telling sign that the rate cycle is not over is that EM domestic interest rate expectations/bond yields have failed to rise amid EM currency depreciation: the reflationary boost from weaker domestic currencies has not been sufficient to reverse the ongoing growth slowdown in these developing economies.
In the past, weak currencies have pushed up inflation in EM countries, but this dynamic does not currently seem to exist. Even rising food prices may turn out to be more deflationary than inflationary: the more EM consumers spend on food, the less income they have to spend on discretionary items, and a lack of non-food demand could push down a broad index of prices.
This, in turn, will weigh on nominal bond yields.
Bottom line: Although there is little value left in EM bond markets, it is too early to bet against even lower EM bond yields.