VanEck Vectors J.P. Morgan EM Local Currency Bond ETF

While local currency has better advantages to hard currency corporate and sovereign, a blended approach could provide optimal returns.

You have laid out a good case to consider both emerging markets local currency bonds as well as floating rate investment grade debt.

Real yields are nominal yields adjusted for inflation, which is often one of the greatest contributors to the nominal yield levels of emerging markets local currency bonds.

Over the past decade, EM (emerging market) debt has delivered stellar returns compared to other fixed income categories, except high yields.

As the emerging market local debt assets (EBND) (ELD) continue to evolve and expand, investors are increasingly looking for opportunities in the space to enhance returns.

With the addition of three new countries to the JPMorgan GBI-EM Global Diversified Index earlier this year, the EM local debt (FEMB) market continued its growth in 2017.

During the past two decades, EM (emerging markets) local debt has evolved to become the largest and most liquid debt market within the emerging market bond space.

The yuan remains a focus of attention of the international community and a key risk for China’s macroeconomic stability in recent years.

Government bond yields in China are higher than its Asian counterparts such as South Korea and Singapore and much higher than major developed markets.

With the onset of reforms, foreign holdings in China’s onshore bond (EMB) (PCY) market is gradually increasing.

Many leading bond index providers are still not including China’s onshore bonds in their benchmark indexes due to various regulatory and operational concerns.

In the third and final phase of bond (EMB) reforms that began after 2015, the substantial activities of the market were open to global investors.

The opening of China’s onshore bond market (EMB) (PCY) was a gradual process that included a number of cautious measures.

In March 2017, Citi’s fixed income indexes decided to include onshore Chinese bonds (EMB) (PCY) in its three government bond indexes.

China’s onshore bond market (EMB), consisting of locally denominated and issued bonds, is larger than the offshore bond market.

VanEck  Given these uncertainties, high yield bond investors may want to ratchet up the credit quality of their portfolios. Fallen angels can be a source of higher quality high yield for investors, given about 77% of the universe was concentrated in BB-rated bonds (just one ratings notch below investment grade) as of April 30, 2017.[2.Composite […]

Investors are stepping back into emerging market bonds after removing billions of dollars from emerging markets in 2016.

According to a recent BofA Merrill Lynch Global Investment strategy report, emerging markets are expected to grow at a modest pace of 4.7% in 2017.

Negative bond yields in Japan and low Fed funds rates in the United States and the Eurozone were one reason emerging market bonds performed well in 2016.

Since the US presidential election, emerging markets have bounced back as though the election never happened.

A strengthening dollar impacts the emerging bond market’s performance. Uncertainty started revolving around the performance of emerging market debt.

Donald Trump’s surprise presidential win and the rising dollar called for a sell-off in most emerging market currencies like Mexico and Turkey.

In the emerging market bond space (PCY) (EMLC), high-yield bonds and local currency bonds outperformed hard currency sovereign bonds.

Trump’s unexpected presidential victory caused short-term uncertainty about markets and policies. His win reinforced a reflationary theme in global markets.

The Turkish lira plunged to record lows against the dollar following its downgrade by Moody’s and S&P, who cited increased political instability as well as geopolitical stresses and turbulence.

In recent years, emerging market (EMLC) (HYEM) ratings have improved considerably due to the strengthening macroeconomic framework as well as years of reforms.

In her speech at the Jackson Hole Economic Symposium, Fed chair Janet Yellen expressed optimism about another rate hike in the United States.

Investors with higher risk appetites may want to shift their focuses to emerging market bonds, as most developed market bonds are trading at negative yields.

Strong Local Currency Performance As Rates Remain Steady Returns in the emerging markets debt space have so far in 2016 ranked commensurately with risk. More specifically, local debt has been the top performer, with a total return of 17.08% YTD after a very strong September (2.02%). Although local sovereigns are lower duration by nearly two […]

Strong investor interest in emerging market debt (EMLC) (HYEM) has continued despite adverse political and economic issues in some countries.

Negative bond yields in Japan and the Eurozone, coupled with very low federal funds rates in the United States, are part of why emerging market bonds and currencies have performed so well in 2016.

In today’s context, emerging market bonds (IGEM) look like good opportunities for investors.

It’s important to consider the REER case studies for the Mexican peso and the US dollar….

The International Monetary Fund defines REER as an average of the bilateral real exchange rates between a country and its trading partners, weighted by their respective trade shares.

Emerging markets’ nonfinancial corporate debt breached the $26 trillion mark in the first half of 2016.

Investment-grade emerging market sovereigns have been given BBB or higher credit ratings by one of the credit rating companies. They’re relatively safe.

The Federal Reserve kept its key interest rate unchanged in its policy meeting this week while signaling a possible rate hike in December.

While around 30% of developed market bonds (IHY) are trading at negative yields, emerging market debts (HYEM) are offering attractive returns.

Brazil’s (BRF) new government is eager to implement structural reforms to strengthen fiscal responsibility, and the central bank is likely to follow suit.

Strong investor interest in emerging market debt (EMLC) (HYEM) has continued despite adverse political and economic issues in some countries.

In the wake of disappointing economic indicators over the past month, the Federal Reserve kept the interest rate unchanged in its policy meeting this week.

Perhaps one of the biggest tailwinds recently, particularly for local currency strategies, has been the stabilization and rebound in commodity prices this year.

In addition to supportive technical and monetary policy, fundamentals appear to be stabilizing, and in many cases, improving in emerging markets economies.

It’s useful to analyze the historical returns of credit rating categories within emerging markets bonds.

Emerging market debt (EMB) offers plenty of opportunities to investors. Markets are expected to continue their outperformance for the next few quarters.

Emerging market debt (EMB) has attracted investor’s attention as a higher-yielding alternative in a world where yields are quickly falling below zero.

Under the current uncertain economic circumstances, investors flocked to emerging market debts in search of higher yields.

In the long term, Eastern Europe is largely affected by the United Kingdom’s exit from the European Union because of its strong trade links.

While global growth statistics remain within muted expectations, EM debt and equity could remain the beneficiaries of additional capital flows for some time.

By early July, some $11.5 trillion in bonds were trading at negative rates, with 58% of the Barclays US Aggregate Bond Index1 trading below 1%.

Global emerging markets (“EM”) debt, both hard and local currency, rebounded strongly in June after a significant retracement in May.

HY EM bonds currently offer higher yields than both high yield US corporate bonds (HYG) (JNK) and high EM sovereign bonds.

Emerging market (or EM) international bond funds invest in bonds whose issuers are based in countries whose economies aren’t as advanced as those in developed markets.