Over the past several years, emerging markets (EM) bonds have offered some interesting opportunities for investors seeking yields higher than those to be found in the developed markets. Not least in those countries with negative rates.

EM bonds can be divided into four categories: hard currency sovereign and corporate, and local currency sovereign and corporate. As many EM countries have strengthened their economies since the debt crises of the late ‘90s, issuance of local currency sovereigns has grown while the proportion of sovereign bonds denominated in hard currencies has declined.

On the other hand, the universe of hard currency corporate bonds has continued to grow, while the investable universe of local currency corporate bonds remains relatively small. It will be interesting to see if future growth of the local corporate market follows a similar trajectory to local sovereign bonds, especially if the U.S. dollar remains strong.

Source: MVIS Data as of September 30, 2016. Sovereign (Local FX) is represented by the MVIS EM Sovereign Bond (Local FX). Sovereign (USD & EUR) is represented by the MVIS EM Sovereign Bond (USD&EUR). Corporate (Local FX)

About the Author:

William Sokol joined VanEck in 2016 as a product manager for VanEck Vectors ETFs, focusing on the firm’s international fixed income products. Prior to joining VanEck, Mr. Sokol held various product development roles at Prudential Financial, and was a derivatives structurer at BNP Paribas. Mr. Sokol holds a B.S. in Finance from New York University and is a CFA and CAIA charterholder.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.