Emerging market bond exchange traded funds will continue to strengthen as yield-hungry investors eschew the low and even negative-rates in developed markets.
Bonds issued by developing countries have arguably benefited from the aggressive central bank policies from developed economies that depressed global yields, the Financial Times reports.
“The only countries in the world that are actually normal — normal monetary policy, normal interest rates — are emerging market countries,” Jan Dehn, an investor at Ashmore, told the Financial Times.
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The negative rate policies out of the European Central Bank and Bank of Japan have pushed down yields in overseas developed markets.
While yields in developed economies remain depressed, with some even trading with negative yields, emerging market bonds have quickly gained traction as one of the few areas left with attractive yields. The JPMorgan global diversified composite index that covers emerging market bonds has increased almost 15% year-to-date.
“In a world of very low rates, emerging markets shines through as a place where you can get some interesting relative value in a world that is increasingly devoid of it,” Chris Gilfond, an emerging markets origination banker at Citi, told FT.
Moreover, emerging market bonds are also being supported by the strength of local currencies against the U.S. dollar. Emerging market currencies have appreciated after the bouts of extensive weakness last year and a sharp fall off earlier this year, with the JPMorgan emerging market FX index up almost 9% year-to-date.
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