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EM Bond Selloff: Investors Flee Risky Debt
28 Sep
Summary
- Emerging market investors are reducing exposure to riskier bonds.
- Global credit market selloff causes high yields on US Treasuries.
- Credit spreads are at their tightest levels since 2007.
Emerging market investors are scaling back their most speculative bond investments as a broad selloff in global credit markets disrupts the developing world's debt markets. This activity comes despite a stellar performance for emerging market dollar debt, which returned 1.4% over the past year.
Recent turmoil has pushed US Treasury yields to their highest levels in nearly two decades. Money managers are particularly concerned by credit spreads, which have tightened to levels not seen since 2007, signaling a potential for future bond selloffs.
Some analysts are reacting by reducing their exposure to specific emerging market countries. These managers are shifting towards higher-rated credits, such as those from Indonesia and the Philippines, to mitigate risks. The current environment, with oil prices above $100 a barrel and expectations of sustained high global interest rates, adds to investor caution.
