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Even more reasons to allocate to emerging debt

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By Natalia Gurushina
Chief Economist, Emerging Markets Fixed Income

The majority of investment grade emerging markets and several high yield emerging markets have a perceived default risk of less than 1 year compared to the United States

US debt ceiling

There are many good reasons to allocate to emerging debt, and now you can find another right on your Bloomberg screens. The US is a AAA rated economy (the highest sovereign rating tranche) and we are seriously discussing a possibility of default in the coming months (the debt ceiling debacle).

THE The 1-year credit-to-default (CDS) spread for the United States is currently wider than 1-year CDS spreads for the majority of the lowest-rated securities Emerging Markets Investment Grade (EM) – including Uruguay, Peru, Mexico, Chile, Panama, Czech Republic, Kazakhstan, Poland, Qatar, Kuwait, Saudi Arabia, Israel, Bulgaria, Hungary, Romania, Thailand, Philippines, Indonesia, India, China, Malaysia and South Korea ( see table below).

Emerging Markets Credit Quality

The 1-year CDS spread for the United States is also wider than the 1-year CDS spreads for all high yield emerging markets – including Brazil, Costa Rica, Guatemala, Oman, Morocco, South Africa, Bahrain, Serbia and Vietnam.

Let it sink in. Stay tuned !

Chart in brief: Perceived one-year default risks in the United States and emerging markets

Chart in brief: Perceived one-year default risks in the United States and emerging markets
Source: Bloomberg LP.

Initially published by VanEck on April 26, 2023.

For more news, information and analysis, visit the Beyond the Basic Beta Channel.


PMI – Purchasing Managers Index: economic indicators drawn from monthly surveys of private sector enterprises. A reading above 50 indicates expansion and a reading below 50 indicates contraction; ISM – Institute of Supply Management PMI: ISM publishes an index based on more than 400 surveys of purchasing and supply managers; in both manufacturing and non-manufacturing industries; CPI Consumer Price Index: an index of the change in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indices that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal consumption expenditure price index: a measure of US inflation, tracking changes in the prices of goods and services purchased by consumers across the economy; MSCI-Morgan Stanley Capital International: a US provider of equities, fixed income, hedge fund stock indices and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows market expectations for 30-day volatility. It is constructed using implied volatilities on S&P 500 index options; GBI-EM – JP Morgan Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by emerging market governments; EMBI – JP Morgan Emerging Markets Bond Index: JP Morgan index of sovereign bonds denominated in dollars issued by a selection of emerging countries; EMBIG – JP Morgan Emerging Markets Global Bond Index: tracks the total returns of external debt instruments traded in emerging markets.

The information presented does not imply the provision of personalized investment, financial, legal or tax advice. This is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Certain information may be provided by third party sources and, while believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. All opinions, projections, forecasts and forward-looking statements presented herein speak as of the date of this communication and are subject to change. The information contained herein represents the opinion of the author(s), but not necessarily that of VanEck.

Investing in international markets involves risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve increased risks related to the same factors as well as increased volatility, lower trading volume and less liquidity. Emerging markets may have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

Any investment is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that the investment objectives will be achieved and investors may lose money. Diversification does not guarantee a profit or protect against loss in a declining market. Past performance does not guarantee future performance.

Learn more at ETFtrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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