It’s Early, But EM Bonds Are Rebounding

By Todd Shriber via

Amid the Federal Reserve’s four interest rate hikes and the U.S. dollar ranking as one of 2018’s best-performing major currencies, emerging markets bonds were among last year’s most savagely repudiated asset classes.

Neither dollar-denominated emerging markets bonds nor the local currency equivalents were spared last year. A strong greenback pinches dollar-denominated debt issued by developing world governments by boosting external financing costs. When emerging markets currencies sag, as was the case last year, companies benefit if their revenue is earned in foreign currency, but there is no such respite for local currency debt.

Fast-forward to 2019 and the outlook appears to be more sanguine for emerging markets debt and the related exchange traded funds, including the JPMorgan USD Emerging Markets Sovereign Bond ETF (JPMB). Yes, 2019 is still in its infancy, but a gain of 1.46 percent to start the year (as of January 10) for the JPMB is encouraging.

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