Even for the safest debt, last year’s bond market was unforgettable, but opportunities are emerging now that investor confidence is at an all-time high to start the year. This is again fueling investor interest in riskier debt, including emerging markets (EM).
A strong dollar for much of 2022, higher interest rates and rising global inflation presented a triple whammy for emerging market investors. Additionally, some countries were still grappling with the economic effects of the COVID-19 pandemic – China, for example, experienced a resurgence in COVID cases, forcing them to reinstate containment measures that were hampering economic growth.
Now, as the smoke clears from the confluence of 2022 headwinds for emerging assets, investors are giving them a second look, including bonds. Emerging countries have issued bonds to start the new year, and the demand is there to absorb the supply.
“Emerging market countries placed $39 billion in bonds in the first two weeks of this year, almost half of the total for all of 2022. Investors have outstripped them,” said one. Baron’s article noted.
At some point, emerging market bond markets were going to see a turnaround with the rest of the broader bond market, and so far, that appears to be the case. It’s a rally that’s been brewing since the final months of 2022 as the expectation of fewer interest rate hikes began to grow.
“Emerging markets have amplified a global bond rally that began three months ago as investors begin to see light at the end of the tunnel of inflation and rate hikes to stifle it,” the statement added. article.
Convenient and profitable exposure to emerging bonds
There are a plethora of ways for investors to get into emerging market bond action, but the vast opportunities available can be overwhelming. Plus, knowing the right mix of debts to get diversified exposure only adds to the complications.
Rather than simply issuing individual debt by various countries, there is a simpler way: the Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB). It does all of this with a low spend ratio of 0.20%.
VWOB seeks to track the performance of a benchmark index that measures the investment performance of US dollar-denominated bonds issued by governments and government-related issuers in emerging countries. The fund uses an index investing approach designed to track the performance of the Bloomberg USD Emerging Markets Government RIC Capped Index.
For more news, information and analysis, visit the Fixed income channel.