Many fixed income face challenges in their efforts to increase income and yield without taking added interest rate or credit risk. Making those efforts all the more challenging is the fact that many developed markets outside the U.S. have historically low or even negative interest rates, a scenario explaining why money continues pouring into exchange traded funds holding U.S. Treasuries.
An area to consider for yield-hunting bond investors willing to consider emerging markets is China’s massive onshore bond market.
Accessing China’s massive onshore bond market has also been hard to access, but some U.S.-listed ETFs are changing that as well. With developed market benchmark yields from Germany to the U.S. tumbling, now could be the time for bond investors to consider allocations to ETFs such as the VanEck Vectors ChinaAMC China Bond ETF (NYSEArca: CBON).
CBON, which tracks the ChinaBond China High Quality Bond Index (CDHATRID), holds government debt, quasi-sovereigns and high-grade corporate bonds.
“The onshore Chinese bond market was, until several years ago, closed to foreign investors. Through a very deliberate, and directionally consistent process of liberalization, onshore Chinese bonds may become a significant weight in many, or most, global bond portfolios within the next two years. The impact on emerging markets bond indices and fund weightings will be even more significant,” said VanEck in a recent note.