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So what's happened with tariffs under the new Trump administration? Well, tariffs were announced on Canada and Mexico at an expected 25%. But more or less immediately, within 24 hours, got a one-month extension in exchange for some strategic concessions, not on economic issues.

Tariffs, were also announced on China at 10%. But the response was number one targeted, and number two didn't include soybeans. So these are indications that they're saving those issues for a compromise later.

And overall, you could argue that the Trump administration's response has been sensitive to the market impact of China. It is a tit-for-tat game, unlike the potentially one-off ‘chicken’ games with Mexico, Colombia, and Panama. But it seems bounded. And the Chinese response was consistent with that view.

Last but most importantly, the Chinese foreign exchange fix, the CNY fix, is their most important signaling mechanism for months now. It has been stable to better than expected by the survey the morning before the fix. It's a really strong sign of stability and of calm. It could be held up as a threat, if negotiations go bad. But if the negotiations between the US and China end up with 10% tariffs and a 10% CNY deval, even Treasury Secretary Besant is going to say that's a loss.

So we think one of the modalities, probably central case, is an agreement on currency stability with the US, whatever gets agreed on tariffs. And that's important because that's the only thing you can really care about in bonds, is how does this transmit?

If the FX is stable, we expect the same thing we've seen for last five years, which is Asia gets anchored. Remember, Asian interest rates are now the same as US interest rates, broadly speaking. EM Asian is the biggest thing that's happened in last five years, and that will get anchored. So that's what's happened, and the market is trying to figure out what stage are we at, and how are things going to be going forward.

Implications of Trump tariffs on asset prices

So I told you what happened in terms of the Trump administration's tariffs and the response from China. What does this mean for asset prices in general? Well, I think there are two, maybe three big implications.

The first is interest rates down. Why? It's the biggest short in the market still. And a lot of the concerns are projections, in our opinion, of fiscal concerns on Trump that say more about the speaker than about reality. There may be fiscal concerns about Trump that are legitimate. We think it's way too early and we think it's more or less a hollow argument.

The other one is potentially dollar down. It's the second biggest position in the market, particularly against euro, some against CNY, CNH, some still against dollar peso. And that could reverse, especially in the case of Mexico. But that's a second big implication is dollar down.

The third is, and this is a little more speculative, it might be risk on. To the extent that these concerns that the market has had, not just since President Trump's election, but before Trump's election, may be peaking, right? Either peaking or resolved. And that will be the elimination of a big period of uncertainty. And what are you going to be left with if this is gone? What you're going to be left with is a US that's stimulating. Remember, taxes are being cut, regulations are being cut, that's stimulative. And China is at risk of stimulating.

The property sector, has been a really interesting sector for us, but the bottom line of it is we think a lot of the major issues in the property sector may be over. What over means for us is we don't find cheap things there anymore. The majors are established. So this is a pretty neat context.

Emerging Market Bonds Positioning

So I summarized what the Trump administration has done on tariffs. I told you what I think it means for asset prices in general. What does it mean for our portfolio of EM bonds in particular?

For months, we have been trying to establish a position that reflects what will happen once these risks are either priced or addressed. And the main way we had done that was having an overweight in local currency. Local currency overall did poorly, however, not if you didn't own Mexico.

So. Our number one response will continue to be bottom-up finding the countries, not some top-down response. So we're very, very selective. And last year, our best performer was not owning Mexico. And in January, our best performer was owning Mexico. And so we think that's one really important implication is country-specific.

So Mexico is a big part of our answer, but the real answer is country by country.

This may have been a game of chicken for Mexico, Colombia and Panama. And the most important feature of a game of chicken is that it's only one round. And that one round may be over. We don't know yet.

Another big part of our answer is going to be long duration. So we have an overweight relative to our benchmark and duration. But real rates in a lot of EMs were especially high, both policy rates and market rates. So you could see this duration rally really be turbocharged in some of the EM local currency bond markets, as well as their long-dated dollar-denominated bonds. So we have some century bonds that have a lot of upside if rates go down and not a lot of downside if rates go higher.

So those are our main reactions. We're maintaining our attractiveness to duration and continuing to have exposure to the world as it's going to look when this is priced or resolved.

Thank you for listening. Please visit VanEck's website for more insights on emerging market bonds.