Three reasons emerging market bonds still look attractive

Fading hopes of multiple US rate cuts in 2024 would conventionally be seen as a negative for emerging market (EM) bonds. But spread levels and overall yields point to potential value in a maturing market that has become more resilient to defaults.

Key takeaways

- EM government bonds are trading relatively tight to US Treasuries overall, but this has been driven by investment grade sovereigns.
- We see appealing stories in high yield countries where the macroeconomic direction of travel is positive, such as Ecuador.
- With yields around 8% for the overall index and over 10% for high yield, the carry (gains made from bond income over time) available in EM looks attractive.
- EM bonds have performed strongly despite negative perceptions, and the universe has become much more resilient to defaults and geopolitical crises.