When comparing global central bank monetary policies, most developed countries have heavily relied on quantitative easing and low interest rates to bolster their economies, with some, notably the U.S. and the United Kingdom, already eyeing tighter monetary policies to obviate a potentially overheating economy. Meanwhile, many emerging market central banks have more room to run with their easing policies, which may continue to support their local debt securities.
The recent weakness in the U.S. dollar and stronger EM currencies have helped bolster demand for emerging market assets, including bonds. Those themes are benefiting ETFs, such as the iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: EMB).
EMB tracks the J.P. Morgan EMBI Global Core Index, a market-cap-weighted index. Potential investors should note that since it is a cap-weighted index, countries with greater debt will have a larger position in the portfolio. EMB is now the world’s largest emerging markets bond fund, ETF or mutual fund.
Year-to-date, investors have added over $2 billion to EMB.
For more information on the developing economies, visit our emerging markets category.
Tom Lydon’s clients own shares of VWO.