Demand for emerging markets (EM) bonds are heating up as fixed income investors expect rate cuts to occur following the Federal Reserve’s reiteration of looser monetary policy this year. Argentina bonds are one of those offerings hitting new highs amid other factors aside from rate cuts.
The country’s bonds have been rallying as new leadership under President Javier Milei starts to take its effect. Bets are on that under his administration, Argentina’s economy will improve as the president makes austerity a prime focus to improve the country’s tenuous financial situation.
In the meantime, bonds will get volatile. But market experts think that will eventually gave way to some degree of normalcy.
“Despite the strong move over the last few sessions and the potential volatility around the ongoing political negotiations, we think newly established levels can be consolidated,” wrote JPMorgan analysts, via a Reuters report.
Reuters also noted that Argentina’s “country risk” has fallen to new lows, giving investors some peace of mind before diving into the country’s bonds. That will certainly appease those who are more risk averse when considering EM bonds.
“There are plenty of political challenges and execution risks, but there appears to be a path to a political agreement,” added JPMorgan.
Argentina Bond Exposure and More
EM bonds offer a means for diversification of a bond portfolio in addition to attainable yield. The latter is especially important for fixed income investors who want to take advantage of the yield opportunity now before the Fed institutes rate cuts.
That said, consider exposure via EM bond-focused exchange-traded funds (ETFs) such as the Vanguard Emerging Markets Government Bond ETF (VWOB). In addition to adding exposure to Argentina bonds, the fund is deeply diversified. It offers over 700 bond holdings with an average duration of just over seven years. Furthermore, exposure to Argentina bonds are less than 1%, thereby reducing the concentration risk of its holdings.
As of March 22, the fund’s 30-day SEC yield is 6.71%, which should appeal to yield seekers who want to take advantage of the elevated yields now prior to Fed rate cuts. Additionally, this fund comes with a low expense ratio of 0.20%.
Per its baseline fund description, VWOB seeks to track the performance of the Bloomberg USD Emerging Markets Government RIC Capped Index. The index specifically measures the investment return of U.S.-dollar-denominated bonds issued by governments and government-related issuers in EM countries.
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