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  • Emerging Markets Bonds

    Free Lunch? Get 90 bps Yield Pickup with Emerging Markets High Yield

    Fran Rodilosso, CFA, Head of Fixed Income ETF Portfolio Management
    August 01, 2017

    Higher Yield and Lower Duration

    Compared to U.S. high yield bonds, emerging markets high yield bonds offered a 90 bps yield pickup as of June 30, 2017.1 The extra yield came with a lower duration (3.75 vs. 4.04) and a higher average credit quality. Approximately 60% of the emerging markets high yield index is rated BB- or higher versus less than 50% in its U.S. counterpart.

    Historical yield pickup versus U.S. high yield bonds

    Historical yield pickup versus U.S. high yield bonds Chart

    Source: BofA Merrill Lynch. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

    A Diverse and Growing Category

    The emerging markets high yield bond market has grown tremendously over the past 10 years, from $56 billion at the end of 2007 to $440 billion as of June 30, 2017.2 In addition to growing in size, diversity within the category has also increased. Investors currently gain exposure to 349 issuers in 48 different countries across the emerging markets. The quality and diversification help to explain why default rates in emerging markets corporates have been lower on average than in U.S. corporates.3 And because the bonds are denominated in U.S. dollars, investors are not taking on additional currency risk in their portfolios.