Emerging Market Bond Flows
Callum Thomas | Jul 05, 2017 12:38AM ET
Emerging market bonds have come under pressure along with the rest of the yield chasing . Emerging market bonds are one of those.
The first chart in this ChartBrief shows Emerging Markets ETF assets and really if you look at the chart you don't really need to add many words.
Clearly there has been a boom in EM bond allocations in the ETF space. Some of this surely represents longer term strategic asset allocations or shifts from active to passive management, but if you checkout the next chart you can see there is an ebb and flow in the flows, and arguably our flow indicator is pointing to downside risk. That all said if you look at the distribution yield for a USD EM bond ETF it's around 4.5% (with an average underlying yield of about 5.2%) vs an equivalent US treasuries ETF of around 1.8% (avg yield 2.3%), so there is still a substantial yield pickup. Of course, if price drops then yield will look even better!
The major EM bond ETFs have seen a substantial rise in assets under management over the past 2 years.
Taking a rolling quarterly (price adjusted) flows view (standardized against AUM), the ETF fund flow indicator shows a recent surge, which looks to represent an extreme - and likely contrarian - sentiment signal. Thus it's fair to say on that indicator alone that downside risks are elevated.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.