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.
With borrowing costs at the highest levels since the global financial downturn, fixed-income investors are being well compensated for any further risks, like falling commodity prices or a China slowdown.
EMB has a 6.88 year duration and a 5.58% 30-day SEC yield while has a 7.83 year duration and a 4.68% 30-day SEC yield. The Vanguard Emerging Markets Government Bond ETF (NasdaqGM: VWOB) has a 6.2 year duration and a 5.13% 30-day SEC yield.
PowerShares Emerging Markets Sovereign Debt Portfolio
Tom Lydon’s clients own shares of EMB.