Developing market debt ETFs such as iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSEArca: EMB) and the PowerShares Emerging Markets Sovereign Debt Fund (NYSEArca: PCY) have been popular this year with investors stretching for extra yield.
However, emerging market debt ETFs have been caught in a downward spiral since the end of April amid rising U.S. Treasury yields and speculation the Federal Reserve may trim its bond purchases. [Short Interest Surges in EM Bond ETF]
Emerging market currency ETFs have also been under pressure as U.S. government bond rates rise. [South Africa ETF Drops as Rand Hits Four-Year Low]
“Higher-yielding emerging-market assets have absorbed a pounding since early May as both weakening growth outlooks for the EM world and flight from riskier assets have stoked a broad shift away from EM bonds, stocks and currencies,” Dow Jones Newswires reports.
PCY and EMB are both down more than 10% from their recent highs and fell to fresh 52-week lows on Tuesday before recovering somewhat.
Next page: ‘Reaching for yield’