Emerging market investors shun riskiest bonds as US yields soar
Emerging-market investors are pulling back from riskier bond investments amid a significant selloff in global credit markets. The recent turmoil has resulted in high yields for US Treasuries, raising concerns among money managers. With credit spreads at tight levels not seen since 2007, investors are worried about potential bond selloffs. Some analysts are trimming exposure to certain countries…
Emerging-market investors, ranging from Aegon USA Investment Management to JPMorgan Asset Management, are reducing their risky bond investments as global credit market turbulence jeopardizes the impressive performance of emerging world debt, according to wire reports. Despite the recent turmoil driving US Treasury yields to their highest levels in nearly two decades, these emerging market bonds have still delivered a respectable 1.4% return over the past year.
Even with oil prices above $100 a barrel and investors anticipating higher, prolonged global interest rates, credit spreads have tightened to their narrowest level since 2007. This rise in government rates has left money managers concerned about the potential for a sell-off in these bonds. Jeff Grills, head of EM debt at Aegon, expressed worry about the impact of high rates on credit spreads, noting that identifying good investment opportunities is becoming increasingly challenging.
Grills has already reduced his exposure to Colombia while increasing investments in higher-rated credits such as Indonesia and the Philippines.
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