Emerging Market Bond

Emerging market bond is fast becoming a great source of investment worldwide. In America, over the last ten years, the emerging market bonds have thoroughly outperformed the S&P 500 equity index and the corporate bonds in the country.
The ratio of rewards to risks is very encouraging in case of these bonds. Another advantage of emerging market bonds is the scope for diversification offered by them. The benchmark for these bonds is the JP Morgan’s Global Emerging Markets Bond Index. This index has experienced a rise as high as 248% during the period of 1994 to 2004.

The emergence of emerging market bonds is quite staggering given its dubious past. None can forget the famous Tequila Crisis of Mexico when the countries cash and bonds crashed badly. The same thing happened in Asia also, starting with Thailand.

The same story had at one point o time repeated itself in Russia and Argentina also. These mistakes can be attributed to inexperience. These emerging markets had at that point of time only just introduced free market economies.
Now, the economies of emerging markets have been newly structured. Globalization, experience gained from past mistakes, dollar diversifications, low rates of interest, encouraging risk/reward ratios have led to a steady increase in the prospects of these emerging market bonds.

The policy of free markets as adopted by countries worldwide has facilitated emerging market bonds the most. Such a capitalistic outlook has allowed increased access to the global capital markets. The global investment funds also can be accessed easily. The government and corporate debts are now better controlled and exchange rate policies are chalked out much more sensibly.

Value is added by emerging markets through the following sources:
Cost efficient trading
Quantitative research
Credit research
Identifying undervalued securities by making use of bottom up techniques
Maturity structuring or yield curve
Duration management
Currency risk management
Country bond allocation

 

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Last Updated on : 10th July 2013