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Tuesday, June 4, 2013

Emerging Markets Bonds Not A Great Asset Class to Choose in the Search for Yield

From Bloomberg

Turkish Yields Surge Most on Record as Protests Hit Lira, Stocks

The yield on benchmark two-year lira bonds rose 71 basis points to 6.78 percent, the biggest jump since at least April 2005 when Bloomberg began compiling the data. The benchmark stock index plunged 10 percent, the most in a decade, and the lira weakened for a fifth day, sliding 0.8 percent to 1.8903 per dollar at 5:30 p.m. in Istanbul, a 17-month low.

The  largest (by assets) emerging markets bond funds is EMB is has a
6.8% allocation to Turkey, price decline since May 32 is 3.6%  current yield 4.35 so most of the yield has been wiped out (in total return )in a week

EMB now has a total return ytd of  -5%
SJNK short term high yield has a similar yield it's risk and return are compared to EMB below.

I have written before that Emerging markets bonds whether denominated in dollars or especially if denominated in foreign currency are a poor choice to pick up yield given the additional risks vs dollar bonds and suggested looked at domestic high yield bonds, particularly low duration as an alternative.

wsj website June 5

Investors baffled by Turkey Protests

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