“From a policy perspective, positive real yields provide central banks the ability to ease monetary policy to spur growth, a policy tool that is not currently available in most developed markets,” Rodilosso added.
Bond ETF investors interested in gaining exposure to emerging market local currency bonds have a number of options to choose from. For instance, bond investors may look to something like VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) and VanEck Vectors Emerging Markets Aggregate Bond ETF (NYSEArca: EMAG) to diversify their fixed-income portfolio with overseas opportunities and potentially higher yield generation.
EMLC is comprised of bonds issued by emerging market governments and denominated in the local currency of the issuer. EMAG holds a basket of sovereign bonds and corporate bonds denominated in local emerging market currencies, along with those denominated in U.S. dollars and euros, and the portfolio includes both investment-grade and below investment-grade debt.
“Relative to developed markets, emerging markets local rates appear attractive in both nominal and real terms, despite rising real yields in the United States. As of March 31, 2018 the weighted average 10-year yield on the J.P. Morgan GBI-EM Global Diversified Index was 6.26%, versus the 10-year U.S. Treasury yield of 2.74%. In real terms, EM were yielding 2.85% above inflation, which was 2.26% more than U.S. Treasuries and 3.60% more than the G-4 (U.S., United Kingdom, Japan and Eurozone) average, which actually remains well into negative territory,” Rodilosso said.
EMLC has a 5.94% 30-day SEC yield and EMAG shows a 4.27% 30-day SEC yield.
For more information on the fixed-income markets, visit our bond ETFs category.