The Case for Emerging Market Bond ETFs

April 19th at 1:00am by Tom Lydon

Bill Gross, co-founder of the $1 trillion asset management company PIMCO, thinks the U.S. bond market is finally running out of steam after rallying over the past 30 years. What does this mean for fixed-income exchange traded funds (ETFs)? One analyst thinks it means shifting positions into emerging markets.

For the better part of three decades, Treasuries have rallied, pushing the 10-year Treasury yield from 15.8% in September 1981 to 3.89% as of March 25, 2008, reports Sree Vidya Bhaktavatsalam and Christopher Condon of Bloomberg.

However, excess borrowing in developed nations will lead to inflation, says Gross. The result will be a rise in interest rates and downward pressure on bond prices, exposing long-term fixed-income investors to loss.

With evidence that the bond markets of developed countries will be under pressure, Gary Gordon of ETF Expert points to emerging markets for some fixed-income upside. He explains that emerging markets have strong balance sheets and large trade surpluses, which are forecast at $550 billion for 2010, according to John Middleton of Seeking Alpha. This should help attract investor money and push bond prices up.

  • iShares JP Morgan Emerging Market Bond (NYSEArca: EMB)


  • PowerShares Emerging Market Sovereign Debt (NYSEArca: PCY)

Sumin Kim contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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