Emerging-market bonds sizzled for the past year, as interest rates in U.S. Treasuries dropped to the lowest levels in decades. But now U.S. rates are moving up, and that can have wide repercussions in the emerging markets. The last time U.S. rates ran up sharply-from 3% to 6% in 1994-95-the shift wreaked havoc. Worst hit was Mexico, where investors dumped billions of dollars of risky, short-term, dollar-denominated debt, triggering a disastrous economic meltdown that spread throughout the developing world.
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