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Relative to the U.S., emerging markets corporate bond markets are exhibiting healthier and improving credit metrics and, we believe, a potentially attractive risk/reward tradeoff in the high yield space.
Developed market interest rates have dropped significantly so far this year, while in the emerging markets, many central banks are pursuing monetary policies that are aligned with local conditions.
A downgrade of Mexico’s Pemex to junk status could substantially impact the emerging markets high yield bond market. A look at previous emerging markets fallen angels may provide insight into what this may mean for investors.
With virtually no overlap with U.S. high yield corporate benchmarks, we believe emerging markets high yield corporate bonds can offer differentiated exposure within a fixed income portfolio.
A pause or reversal in U.S. dollar strength may favor emerging markets local currency bonds, which are already at historically low valuations against the U.S. dollar.
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