Rising US yields and a stronger dollar hit emerging markets, driving their worst week in two months

According to Reuters, emerging‑market equities suffered their biggest weekly loss in more than two months as of Friday, October 2, with surging US Treasury yields and a stronger dollar weighing heavily on risk appetite. The 10‑year US yield has been trading around the 5% mark, drawing capital back into higher‑yielding, perceived‑safe US assets and away from developing‑world stocks.

Currency moves have been more nuanced. While some units, such as South Africa’s rand, have weakened on concerns over inflation and growth, broader EM currency gauges remain positive year‑to‑date. Many global investors are choosing to stick with local‑currency sovereign bonds even as they scale back exposure to dollar‑denominated debt. Fund‑flow data show continued outflows from US‑dollar EM bond ETFs, while interest in local‑currency strategies has been comparatively more resilient.

Country‑specific risks are increasingly in focus. Assets in markets such as Turkey and Romania, where investors worry about fiscal deficits, credit ratings or political uncertainty, have come under particular pressure. With US rates likely to stay elevated, analysts expect greater differentiation across emerging economies: those with large external imbalances or heavy foreign‑currency borrowing may remain vulnerable. For Japanese retail investors looking at EM funds or bonds, the message is clear—headline yields are not enough; currency, liquidity and political risks need to be assessed just as carefully.