Emerging Market Bonds

Emerging market sovereign bonds that are issued in local currencies are supported by high real yields and improving credit quality. In addition, their risk-to-reward profile is enhanced by declining currency volatility and a positive long-term outlook for currency appreciation. This article explains why local currency emerging market bonds are attractive relative to historical valuation levels as well as current developed market opportunities.

If you are reading this article, you probably work in the financial services industry, and you have grown accustomed to friends, casual acquaintances, and even near-strangers expecting you to comment, with Cramer-esque authority, on penny-stock fliers, explain the latest day-to-day gyrations of the stock market, or reveal the secret code to the price path of gold futures. And, if you are like me, you might sidestep these questions and encourage your new friend to become a long-term investor in a diverse mix of index-based strategies.

Sometimes, however, you might receive a more interesting and open-ended investment question. My eyes always light up when I’m simply asked, “Where is your favorite place to invest today?” The answer, of course, depends heavily on current valuations and market conditions, but we always approach the question with an effort to understand the drivers of long-term risks and expected returns across many different asset classes.

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