It’s been a good year for emerging markets bonds. Even as investors – unnerved by the latest development in the eurozone debt crisis and the dim outlook for a US recovery – continue to pull out of EM equities and EM currencies, appetite for EM bonds shows no sign of abating.
EM bond issues, at $403.2bn for the first five months of the year according to Dealogic, are at a record high while fund inflow into the asset class hit $18.4bn for the year to May 2 compared to $5.7bn during the same period last year, according to EPFR data.
But is the focus on the level of EM bond issuance and the JPMorgan EMBI Global index (which scaled to a new high of 608.7 this month) misplaced? Indeed, a look at the level of EM bond defaults suggest that things are not as quite frothy as they might appear.
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