Bonds and fixed-income exchange-traded funds are hot this year, and within that space, emerging markets bond funds are scintillating.

As has been noted throughout the course of this year, the Federal Reserve's refusal to raise interest rates is capping the dollar's ability to muster much momentum. In turn, yields are coming down on emerging markets bonds because issuers' external financing needs are not as crimped as they were when the greenback was soaring in anticipation of multiple rate hikes.

Enticing ETFs

The two largest emerging markets bonds ETFs each hold dollar-denominated debt and those funds are up an average of 15.5 percent. However, with the dollar weak, that means previously downtrodden emerging currencies are soaring, breathing new life into ETFs that hold emerging markets bonds denominated in local currencies.

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Although such ETFs are usually more volatile than their dollar-denominated counterparts, these funds should reward investors for a little extra risk. For example, the Market Vectors Emerging Mkts Local ETF (NYSE: EMLC) is higher by 17.4 percent year-to-date, a significant advantage over its dollar-denominated rivals.

Getting Excited Over EMLC

It is easy to understand investors' enthusiasm for emerging markets debt, dollar-denominated or local currency. German and Japanese 10-year sovereigns have negative yields. The comparable U.S. bond yields just over 1.5 percent.

However, as VanEck data noted, the 10-year bond in Brazil yield 11.4 percent at the end of July. The same bond in Turkey sported a yield of 9.5 percent. Even relatively steady Chile offers 4.5 percent on its 10-year sovereigns. Brazil, Turkey and Chile, in that order, combine for 16.8 percent of EMLC's weight. The ETF has a 30-day SEC yield of 5.5 percent.