Take note of the USDollar (using an etf UUP as a proxy) vs EMBonds ( using etf EMB denominated in USD). As you'd expect, the correlation is quite negative...
Emerging Market bonds have soared this year especially in periods of steep dollar selloffs (such as early June until early August) and is reflective of growth in many EM economies, improved financial balances in their domestic and foreign accounts, perceived reduced risk relative to years past, and the clamoring call by investors for yield.
Today's article on Bloomberg.com cited key facts/figures on this year's money flows, and especially of late, out of US stock funds and into Emerging Market bond funds. It's worth a read. And for the contrarians out there who might think that now that the press is chock full of this flow, it's time to go the other way, I'd suggest a deeper think on the matter.
With the EMB currently yielding roughly 5.4%, it is true that it hardly looks appealing as a "high yield" addition to the portfolio. But....if the global outlook for EM countries remains on a positive track, which I believe it will, and if you believe that absent a major "flight to quality" or "risk off" move in the markets that would cause a USD spike, the USD is likely to stay depressed with the US economy slumbering (at best) and rates here likely to stay "exceptionally low for an extended period", then the EMB can continue to gain investor admirers and remain firm. When the day comes that the US economy is perceived to be rebounding strongly and the Fed has to dust off it's notes on "how to tighten in a growth economy", then we could see the USD/EMB relationship reverse. But, in my opinion, we have some time for that to happen while we clip the 5+% dividend on the EMB etf.
As with any trade, timing of entry is key. The chart above shows just how far the EMB has already moved in the past 2 months. In line with my general "patience prevails" mode of operation in current markets, I'm waiting for a global event that causes a USD spike and a bit of a softening in the EMB. With the jitteriness of current markets, I shouldn't have to wait too long.....
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Disclosure: Not mentioned, but related: Long: EEM, BRXX, EWZ, FXI, BKF