TCA Financial: Ultra-low bond yields payable on the sovereign debt of advanced economies is attracting investors desperate for return on their capital to emerging market debt and countries like Mexico, Qatar and Saudi Arabia have rushed to meet demand by raising $90 billion on the global debt markets.
Research by US banking giant, JP Morgan suggests that, by the end of 2016, emerging market economies will have raised over $125 billion taking advantage of the insatiable appetite amongst big institutional investors for positive-yielding assets that still have investment grade credit ratings.
With yields on the sovereign debt of countries like Germany, Japan and the UK turning negative, large institutional investors like insurers and pension funds can only hope to realize a profit by selling these bonds on to other investors when prices rise. Bond prices rise and fall inversely to yields – the higher the yield, the lower the price and vice versa.
Buying emerging market debt, however, gives institutional investors a reasonable yield at a lower price while ensuring they meet rules that insist the assets they are allowed to hold must be of investment grade.
“With the likelihood of a September interest rate increase reduced after the August jobs report miss, we can expect the interest in emerging market debt to continue for a little longer,” said Colin Phipps, chief economist at TCA Financial.
“There were concerns that higher US rates could see investors sell emerging market bonds in favor of US treasuries which are seen as safer but the stay of execution until at least the Fed’s December meeting or even beyond should keep capital inflows into these bonds robust,” he added.

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TCA Financial is resolutely committed to helping our clients accumulate and preserve wealth by actively managing the deployment of their investment capital within the global financial markets. We have a proven, checkable track record of being able to accomplish this regardless of the prevailing macro-economic conditions because of our expertise and professionalism and because we know that markets, just like people, are all connected to varying degrees at varying times.