Since the start of US president Donald Trump’s second term in the White House, markets have been surprisingly stable in the face of outlandish statements of intent, a swathe of executive orders and now a falling out with an ally at war — Ukraine — to which his country had been the main military benefactor.
The lesson from Trump's first term, emerging market bond investors have repeatedly said, was to ignore the noise — often expressed on Twitter — and to wait for the reality of policy.
This time it's different. This week he followed through on his promise of a month or so ago that he would impose 25% tariffs on Mexico and Canada and a new 10% levy on China.
He also said in the run-up to his November election victory that he would end the war between Russia and Ukraine. As far back as May 2023, he was promising to end it "in 24 hours" if he was re-elected.
He may have missed his self-imposed deadline, but his intent seems to be clear. After opening talks with Russia to negotiate a peace recently, there followed on Friday a shocking spat in the Oval Office with Ukraine president Volodymyr Zelensky. By Monday night, Trump had paused US military support for Ukraine.
No chance of peace, then? Nothing of the sort.
Ukraine's bonds dropped two or three points on Tuesday but they didn't plummet. By Tuesday night, as GlobalCapital went to press, Zelensky appeared to be contrite, tweeting that "my team and I stand ready to work under president Trump’s strong leadership to get a peace that lasts" and that he regretted the public row.
The implication is that, yes, Trump will still push boundaries in order to negotiate, but this time round he is focussed on achieving long-stated aims. In other words, he has become far more predictable over the long-term.
That makes EM bonds a paragon of stability compared to usually staid and steady European government bond markets, where investors and issuers have seemingly sleep-walked for years, ignoring Trump's demands that Europe spends more on its own defence.
Trump's Ukraine intervention — not inviting Europe to talks with Russia, while pushing for Europeans to take responsibility for maintaining any subsequent peace — has finally shocked European leaders into defence spending commitments, which has ramped up their bond yields.
So where does that leave EM investors? Perhaps in a more perilous spot than it might seem, despite the comparative lack of volatility in the bonds they trade. Although he US's strategic direction is clear, there is still a great deal of bluster and unpredictability along the way.
There is also the risk that the other party across the negotiating table from the US not in as weak a position as, say, Ukraine. What if, during the next deal, the counterparty calls Trump's bluff. Will he be forced to follow through on previous threats?
At that point, EM investors' decision to stand pat might expose them as holding no trump cards at all.