Emerging Markets Debt Sees Record Inflows in January

Declining inflation and China reopening its economy has led overseas debt issuance to soar. In turn, improving economic conditions are spurring investors to pump money into emerging markets debt at a record pace.

Citing data from the Institute of International Finance, Reuters is reporting that debt securities outside of China raked in $44.6 billion, the largest monthly figure on IIF records back to 2018. The first week of the year saw about $28 billion in issuance from emerging market sovereigns and companies.

“The apparent slowdown in [developed market] interest rate hiking and a more favorable outlook have allowed some [emerging markets] to go back to issue fresh debt in the market,” wrote IIF economist Jonathan Fortun in a report.

Fortun added: “The recent rally in inflation-adjusted real yields has alleviated the burden on EM dollar credit,” and the expected decline in U.S. yields clears “the runway for a more positive picture for EMs.”

“The strong inflows underscore a big shift in sentiment this year after a grim performance for developing markets for much of 2022,” according to the Financial Times. “Falling global inflation has led many market participants to bet that major developed market central banks, including the U.S. Federal Reserve, will soon stop increasing interest rates — relieving a major source of pain for emerging markets.”

The Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB) seeks to track the performance of the Bloomberg USD Emerging Markets Government RIC Capped Index, which measures the investment return of U.S. dollar-denominated bonds issued by governments and government-related issuers in emerging market countries.

VWOB carries an expense ratio of 0.20% and comes with a 30-day SEC yield of 6.65%, as of February 13.

Vanguard CEO Tim Buckley said at Exchange: An ETF Experience that the firm’s goal is “to make sure we’re producing the top performing funds and ETFs out there.”

“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” Buckley added. “And if you do that well and you can keep improving it, you’ll create value into the future.”

For more news, information, and analysis, visit the Fixed Income Channel.