The default allocation to EMD tends towards local currency bonds. The market is larger than hard currency bonds, more liquid, and of higher quality. But are you getting paid for your risk today, and if so, where is the outperformance of local currency bonds coming from?
With 10 year treasury yields breaking 4% for the first time since 2007, and EM Sovereign Bond prices falling to levels not seen in 20 years, investors are taking another look at EM bond markets. The fixed income feed inside RFPnetworks was dominated last week by new papers dissecting the universe: The risks, the drivers of performance, and the outlook for EM Fixed Income markets versus developed markets.
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