'Economic condition of EMs determine vulnerability to US bond movement'

The report noted that given the US dollar's role as the primary international reserve currency, US bond market volatility reverberates globally and poses the risk of sustained global financial tightening. Such tightening, in turn, is likely to jeopardise already fragile economic recoveries in many emerging markets.

"For emerging market countries, the effect of the rise in US long-term interest rates and the ability to navigate through increased market volatility varies widely and depends on the particular country's reliance on external capital  and its domestic macroeconomic conditions," it said.

In the largest emerging markets, GDP has recovered from last year's economic trough, but the pace of recovery is diverging between countries. While economic activity in China, India and Turkey has recovered to above pre-Covid levels, for most emerging markets, GDP is still below pre-pandemic levels.

Moody's note that in Argentina, Brazil, Mexico and South Africa for instance, vaccinations, testing and other measures have not yet been effective at containing the virus and those economies have not returned to pre-Covid levels.