These comments resulted in a sharp rise in emerging market (EM) bond spreads (by more than 100 basis points as measured by the JP Morgan Global EMBI) and a 5-6% depreciation in EM currencies (see chart below). EM Assets Sold Off Sharply In 2013 EM - MSCI EM Currency Index & JP Morgan Global EMBI Spread, bps Source: Bloomberg, Fitch Solutions With inflation expectations in the US rising quickly (5-year swaps are at 2.4% in February, up from 1.7% in mid-2020), we see a small, but non-negligible, risk that bond markets could get spooked in the coming months and could potentially re-price expectations with regard to the broad pace of tightening by the Fed. In turn, this could lead to a sharp steepening of the yield curve and tighten market-based financial conditions, weighing once again on EMs. That said, there are key differences between now and then, which could provide slightly more support to EMs.