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LONDON (Reuters) - Emerging economies from Peru to Romania are in the firing line as looming U.S. tapering raises the risk of outflows from local currency bond markets, hitting a vital funding source for governments striving to recover from the coronarvirus crisis.
As the U.S. economy edges back to health, the Federal Reserve is wrestling with the question of when to begin unwinding its monthly $120 billion in asset purchases that has flooded markets in the aftermath of the pandemic.
Any tapering could be bad news for some emerging local bond markets, which make up more than 80% of developing nations’ fixed income universe and form the bedrock for government finances. Local emerging debt sucked in foreign flows of at least $149 billion over the last year, the bulk of to China.