The attractive emerging market bond yields, though, are not without their risks. For example, many fixed-income observers are closely watching the Federal Reserve’s monetary policy. A Fed rate hike could cause a large exit out of emerging market assets in favor of better returns in the U.S.
However, it should be noted that most of the bonds held by EMB and PCY, the two largest emerging markets bond ETFs, are rated well into investment-grade territory.
“Another change stabilizing emerging markets on a macro level has been a mass shift from pegged to floating currencies, which act as a shock absorber in tough times. Instead of the abrupt meltdowns that afflicted the Korean won, Thai baht, or Mexican peso in crises of yore, EM currencies have lost altitude gradually since mid-2011, scraping 15-year lows against the dollar,” according to Barron’s.
iShares J.P. Morgan USD Emerging Markets Bond ETF
Tom Lydon’s clients own shares of EMB.