Emerging-Markets Bonds Are Bit Players at Best
This sliver offers a lot of risk, and the associated rewards might not be sufficient.
Emerging-markets sovereign bonds offer higher yields relative to their counterparts issued by sovereigns in developed markets. These yields compensate investors for the greater risk they face.
Bonds issued by emerging-markets governments carry additional credit risk relative to developed-markets sovereign bonds. There is a greater amount of uncertainty regarding the ability of these governments to service their debt. Concerns over these issuers’ willingness and capacity to pay are often well-founded. Emerging-markets economies may be heavily dependent on a single industry, face political instability, or have poor fiscal and/or monetary policy. Some have a track record of defaulting on their bonds.
Neal Kosciulek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.