Citigroup bullish on emerging market sovereign bonds, betting on lower interest rates and a weakening dollar.

Citi Group has raised the rating of local currency sovereign bonds in emerging markets to "overweight", betting on interest rate cuts and worries that escalating tariffs will weaken the US dollar. Analysts Dirk Willer and Adam Pickett wrote in a report on Thursday that despite early signs of tariff pass-through effects in June inflation data in the United States, slowing service prices could keep inflation under control. They said this "could eventually prompt the Federal Reserve to restart an easing cycle in the second half of 2025", which typically benefits emerging markets.