Global Liquidity vs GBI-EM GD

Global liquidity conditions, as measured by the BofA Merrill Lynch Global Liquidity Tracker, continue to decline (latest reading as of 12th August).

Liquidity conditions have a high correlation to the EM local currency bond index, and the recent divergence is startling and unprecedented. I still feel that the EM rally is running on fumes and will turn lower to match the deteriorating liquidity conditions.

White line – JPM GBI-EM Global Diversified Index

Yellow line – BofA Merrill Lynch Global Liquidity Tracker