Furthermore, emerging market debt ETFs usually holds bonds rated under A which allows for plenty of upside should the bond receive a higher rating. As funds are rebalanced to the index, profits can be reinvested in other bonds on the verge of credit improvement for a very powerful compounding effect, reports ETF Base.

Overall, emerging market debt priced in U.S. dollars is more liquid, which can keep uncertainty in foreign debt issues lower than that of debt issues denominated in local currencies. [Bond ETF Ideas for Higher Yields]

Two high-yield emerging market debt ETFs:

  • JP Morgan Emerging Markets Bond Fund (NYSEArca: EMB) yields 4.75%
  • PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) yields 5.27%

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own EMB.