Default Danger Zone: Bond ETFs That Are In Trouble | Page 2 of 2 | ETF Trends

“As advanced economies normalize monetary policy, emerging markets should prepare for an increase in corporate failures,” IMF warned.

Other banks are also mirroring the IMF’s sentiments. For instance, J.P. Morgan argues that credit quality among emerging issuers is deteriorating and expects default rates among emerging high-yield issuers to hit 5.4% in 2015, compared to 3.2% in 2014.

The problems are also concentrated in some markets, such as Brazil where spreads between yields of Brazilian corporate debt and U.S. Treasuries have widened to nine percentage points as foreign investors exited the market amid signs of rising political and economic problems. The emerging market corporate bond ETFs also hold heavy positions Brazil, including 14.4% of CEMB, 13.9% of EMCD and 11.4% of EMCB.

 

For more information on the developing economies, visit our emerging markets category.

Max Chen contributed to this article.