Investing in emerging market bonds: Proceed with caution


Nov. 26 2014, Updated 4:00 p.m. ET

That all said, emerging market debt is still a volatile asset class when compared to more traditional fixed income investments. As such, allocations to this asset class will largely be a function of an investor’s individual risk appetite.

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Market Realist – Volatility is a key factor when investing in emerging market bonds

The graph above compares 30-day volatility for the iShares JPMorgan Emerging Market Bond ETF (EMB)—which tracks emerging market bonds—and the Vanguard Total Bond Market ETF (BND)—which tracks the performance of the Barclays US Aggregate Float Adjusted Index.

Emerging market bonds are, not surprisingly, more volatile (VXX) than American bonds. This is not unlike emerging market stocks, which tend to be more volatile than US and other developed market bonds.

Despite the high risk latent in these securities for the short term, their long-term prospect is good. So it’s advisable to invest in them with a longer time horizon in mind.

Please read the last part of this series, which explores the correlation of emerging market bonds with other asset classes.


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