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ETF Specialist

Emerging-Markets Bond Breakdown

There are many different types of emerging-markets bonds.

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With more than $9 billion in total exchange-traded fund assets, emerging-markets bond ETFs have grown quite popular with investors in the past few years. Seeking to capitalize on investor demand, ETF providers have launched many new products over the past few years. The emerging-markets bond category has grown into a collection of strategies that offers very different exposures with unique risks. I'll highlight each group and discuss the key differences.

Government bonds of emerging-markets countries denominated in U.S. dollars are the oldest type of emerging-markets debt. When emerging-markets countries first started issuing debt in the early 1990s, the only way to get investors interested was to issue the bonds in U.S. dollars. Over the years as investors have become more comfortable with emerging-markets bonds, issuers have lengthened the average maturity of their issues to 10-20 years. As interest rates have fallen, these bonds have done very well, but if interest rates rise substantially the long duration of these bonds will likely cause high volatility and negative returns.

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Timothy Strauts does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.