A Mixed Case for Some EM Bond ETFs

“In the case of interest rates and specifically for Brazil, the country now has high real short-term policy rates relative to many other developing and developed markets,” said Kiesel. “Brazil’s term structure of interest rates, as reflected in the front end of the Brazilian swap and bond market, is pricing in rate hikes that are unlikely to materialize over the next few years. We believe this provides an opportunity for investors who are focused on the fundamentals in Brazil, which suggest growth is slowing, and that the current level of real rates is too high given a long-term and still-positive secular view of the country.”

Kiesel also notes value has improved for select Brazilian corporate issues, including those of state-run oil giant Petrobras (NYSE: PBR). Widening spreads on Petrobras credit relative to Brazilian debt and U.S. corporates could provide value investors with opportunity ahead of elections later this year. [Warming to Brazilian Bond ETFs]

The $105.6 million WisdomTree Emerging Markets Corporate Bond Fund (NasdaqGS: EMCB) allocates 16.6% of its weight to dollar-denominated Brazilian corporates and several Brazilian issues, including one from Petrobras, are found among the ETF’s top-10 holdings.

About 77% of EMCB’s holdings are rated BBB or BB. With an effective duration of 4.98 years, the actively managed EMCB has a 30-day SEC yield of 5.06%. EMCB is up 1% this year.

WisdomTree Emerging Markets Corporate Bond Fund