Investors may be attracted to the cheaper valuations and wider yield premiums that emerging market bonds offer over safe-haven government debt, especially with yields on benchmark 10-year Treasuries dipping back toward historical lows this year.
“The lower for longer outlook for Fed rates extends investors’ reach for yield. It also buys time for EMs to implement structural reforms, such as India’s recent tax reform and Indonesia’s renewed push for fiscal reform. This could enable select EMs to be more resilient when the Fed eventually normalizes rates. We like EM debt, where spreads remain attractive, and are neutral on EM equities. We prefer domestically oriented stocks and EMs with reform momentum,” adds BlackRock in the note posted by Barron’s.
For more information on the fixed-income market, visit our bond ETFs category.
iShares J.P. Morgan USD Emerging Markets Bond ETF
Tom Lydon’s clients own shares of EMB.