As fixed income ETF flows have reached record levels, the emerging markets (EM) high yield bond space is also experiencing record activity with bonds sold in 2019. That pace will more than likely keep up in 2020, according to a recent Wall Street Journal article.
“Companies in developing nations sold a record $118 billion of high-yield dollar bonds this year, and are likely to keep up a fast pace in 2020,” a Wall Street Journal report noted. “The total has more than doubled from five years earlier, according to Dealogic data. The figures cover debt in dollars with subinvestment grade credit ratings, or no rating, and run to Dec. 18. They don’t include bonds sold by governments.”
It’s been a rocky ride for EM assets thanks to a U.S.-China trade war that appeared to be on its way to a resolution, only to be derailed by more back-and-forth tariffs and then back to a “phase one” agreement. Either way, EM appears to be ending the year on a positive note.
“It was one of those weird years where the economic situation was worse than expected from the beginning of this year,” said Michael Kushma, the chief investment officer for global fixed income in New York at Morgan Stanley Investment Management. “That makes investors worried that we have all the good news priced in and that next year it’s going to be much more challenging.”
For investors seeking high-yielding income and emerging markets exposure, they can look to the VanEck Vectors EM High Yield Bond ETF (NYSEArca: HYEM). HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.
- Focuses solely on the non-sovereign segment of the high yield emerging markets bond market
- Currently lower average duration versus high yield U.S. corporate bonds
- Lower historical default rates compared to high yield U.S. corporate bonds
Top 10 debt holdings as of Dec. 18:
- Southern Gas Corridor Cjsc: 0.74
- Sberbank Of Russia Via Sb Capital Sa: 0.69
- Teva Pharmaceutical Finance Netherlands: 0.61
- Dae Funding Llc: 0.57
- Teva Pharmaceutical Finance Netherlands: 0.56
- Abja Investment Co Pte Ltd: 0.54
- Yapi Ve Kredi Bankasi As: 0.52
- Kazmunaygas National Co Jsc: 0.51
- Eskom Holdings Soc Ltd: 0.50
- Kazakhstan Temir Zholy Finance Bv: 0.49
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