Playing Emerging Market Bonds

With all the recent problems in developed markets, some investors are looking to the fast growing nations of emerging markets as safe havens. Income investors have been drawn to developing nation’s bonds as alternatives to the paltry rates on Treasuries. The appeal of emerging markets through their debt securities is that unlike the U.S. or Japan, these nations often have lower debt to GDP ratios. For example, Brazil has an approximate 60 percent debt to GDP and for Malaysia it’s around 54 percent. In addition, these bonds often yield in the 5 to 8 percent range. Two new ETFs recently hit the market, offering exposure to emerging market bonds denominated in local currencies. The Market Vectors Emerging Markets EMLC and WisdomTree Emerging Markets Local ELD offer in addition to dividends, the possibility of gains based on how the underlying currencies move in relation to the greenback. The two established funds, the PowerShares Emerging Markets Sovereign Debt PCY and iShares JPMorgan USD Emerging Markets Bond EMB, hold emerging market bonds denominated in the U.S. dollar.