Emerging markets bonds historically do well in a rising interest rate environment. If interest rates are rising due to higher growth prospects—as opposed to a “taper tantrum1”—emerging markets bonds may do particularly well. This makes sense, given that rising U.S. growth tends to lead to higher imports from emerging market countries, higher capital flows, and generally “risk-on2” conditions. GDP is, after all, the denominator under which everything from corporate debt service to individual consumer consumption is based. Credit quality should improve during periods of rising economic growth, and we believe the U.S. looks set for a lot of growth. In fact, the U.S. is on track to potentially grow faster than China in 2021, in our view! The only reason to worry, traditionally, would be a Federal Reserve (Fed) looking to take the punchbowl away too quickly, and we don’t expect to see that.

MVIS EM Aggregate Bond Index


Source: MV Index Solutions. Rebased to 1,000. Data as at 08 April 2021. 

1 Taper tantrum refers to the 2013 spike in U.S. Treasury yields, after investors learned that the Federal Reserve was slowly halting its quantitative easing program. 
2 An investment environment in which investors have a higher risk appetite and increased demand for exposure to higher risk assets.

About the Authors:

Eric Fine is a Portfolio Manager for the active Emerging Markets Fixed Income Strategy at VanEck. He oversees the Emerging Markets Fixed Income Team including asset allocation, fixed income research and security selection and joined VanEck in 2009. Prior to VanEck, Mr Fine held senior leadership positions at Morgan Stanley including founding and managing Morgan Stanley's Emerging Markets Proprietary Trading group, advised numerous governments on economic policies and debt profiles; rescheduled sovereign debts in Turkey and the Dominican Republic. He helds a MPA in International Trade/Finance, Harvard University and a BA in Public Policy, Duke University.

Francis G. Rodilosso, CFA is Portfolio Manager and Head of Fixed Income ETFs at VanEck. He is responsible for portfolio strategies as well as credit and market analysis; specializes in international bond markets and joined VanEck in 2012. Prior to VanEck, Mr Rodilosso was Managing Director of Global Emerging Markets with The Seaport Group and launched the firm’s emerging markets fixed income sales and trading business. Previously, he held portfolio management positions at Greylock Capital and Soundbrook Capital; focused on corporate high-yield and distressed bonds with an emphasis on emerging markets. He is CFA charterholder; member of CFA Society New York and helds a MBA (with distinction) in Finance, University of Pennsylvania and an AB in History, Princeton University.

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