Despite being associated with riskier developing economies, emerging market bond ETFs include high-quality debt. For instance, EMB tracks investment-grade bonds, including a 3.9% weight in AA-, 2.0% in A+, 0.5% in A, 8.4% in A-, 9.2% in BBB+, 11.7% in BBB and 20.1% in BBB-. PCY also tracks 4% AA-rated bonds, 17% A and 44% BBB. [Asian Bond ETFs Could be Vulnerable]
Additionally, the bond ETFs offer attractive yields, with EMB showing a 4.36% 30-day SEC yield and PCY showing a 4.74% 30-day SEC yield. In contrast, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF), which has comparable durations as the two emerging market bond funds, comes with a 2.25% 30-day SEC yield.
“It’s really attractive on a short-term income basis relative to alternatives and…the long-term prospects with demographics relative to the developed world and the sort of metrics that you would expect to generate improving economies,” Josh Barrickman, head of bond indexing at Vanguard, said in the article.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of EMB.