Emerging markets debt has been a top fixed income performer for the third quarter, according to BondBloxx. This is especially noteworthy given the lower duration and higher income component.
While emerging markets debt was down -0.4% the third quarter, by comparison, U.S. Treasuries returned -3.1% during the same period. Meanwhile, munis and investment grade corporates returned -3.9%, and -3.1%, respectively. Emerging markets debt with maturities under 10 years returned 3.2% on a year-to-date basis.
“With slowing economic growth outside the U.S., many central banks are starting to ease rates, while the U.S. is embracing ‘higher for longer,’” according to BondBloxx. “For example, the Bank of Brazil has eased their policy rate by 100 basis points in the last two months. Chile, Uruguay, and Poland are among other debt issuers that have lowered rates recently. This spread in rate policy has helped to increase the value of the U.S. dollar.”
See more: “High Yield Outperforms All Other Fixed Income”
Targeting Short- to Intermediate-Term EM bonds
The BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) targets short- to intermediate-term U.S. dollar-denominated, EM bonds. It excludes bonds with maturities longer than 10 years. The fund tracks the J.P. Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index.
XEMD’s index was built without making significant country or sector deviations from the full index. The index is also shorter in duration than other broad market emerging market bond benchmarks. This results in potential relative performance advantages during a rising rate environment.
“XEMD is designed to give fixed income investors the ability to better manage their duration exposure when investing in emerging markets debt,” said JoAnne Bianco, client portfolio manager at BondBloxx.
XEMD is one of 20 fixed income ETFs that BondBloxx has launched since February 2022, which include seven industry sector-specific high-yield bond ETFs, three ratings-specific high-yield bond ETFs, eight target-duration U.S. Treasury ETFs, and an active high yield bond sector rotation fund.
BondBloxx was launched in October 2021 to develop precision fixed income ETFs. Now, the issuer offers 20 funds that span U.S. Treasuries, high yield bonds, and emerging market bonds. The issuer recently crossed the $2 billion asset mark.
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