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Thomas Kenny

The New Frontier: Emerging Market Corporate Bonds

By November 21, 2012

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Investors' search for higher-yielding investments has been a boon for emerging market corporate bonds in 2012. An area that received very little attention until just recently, emerging corporates have benefited from a flood of new assets so far this year. According to Reuters, money managers and hedge funds had purchased a record $288 billion of the bonds year-to-date through November 15, fueling new issuance and driving the total value of the market over $1 trillion - as large as the U.S. high-yield bond market.

One cause of this frenzy of activity is an extremely favorable relationship between risk and yield offered by bonds in this asset class. Since investors demand a higher premium for emerging-market corporates than U.S.-based issues, the bonds frequently offer higher yields than those issued by U.S. companies in similar financial condition. This can lead to compelling yield opportunities for longer-term investors and those who are comfortable with elevated volatility. For example, one of the highest-yielding bond ETFs in the market right now is the Market Vectors Emerging Markets High Yield Bond ETF, which sports a 30-day SEC yield of 6.76%. Emerging market corporates aren't for everyone, but they are among the few investments left that can offer investors a yield more than four to five percentage points above the rate of inflation.

Learn more: How to invest in emerging market corporate bonds

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