The series of yield capture for emerging market bonds has returned to a level not seen in 17 years.
Investors are buying up the bonds of some of the world’s poorest countries so fast that their risk premium is declining at the fastest rate since June 2005 relative to their investment-grade peers, according to data from JPMorgan Chase. Even countries that were on the verge of default just a few months ago, such as Pakistan, Ghana and Ukraine, are driving voter turnout.
Earlier this month, the sharpest sell-off since the 2008 financial crisis had emerging market investment managers talking about how cheap high-yield bonds were and how their underperformance relative to higher-rated debt was a bias unsustainable. But bonds continued to be shunned as US yields surge led by the Federal Reserve’s aggressive monetary tightening. Only now are investors coming back with the prospect of a slower pace of interest rate hikes.
