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EM investors go down credit curve to hedge rates 

July 7, 2014
Davide Scigliuzzo, IFR

Worried about a rise in US Treasury yields, some emerging market investors are shunning high-quality corporate bonds and reaching down the credit spectrum to reduce rates sensitivity in their portfolios.

The strategy could boost total returns at a time when credit spreads have little room to compress further and competition to outperform benchmark indices runs high among fund managers.

“Investing in emerging markets has become a macro exercise, where individual credit stories are less important than US Treasury moves and global liquidity conditions,” said Jim Barrineau, co-head of emerging market debt relative at Schroders.

US Treasury exposure has been an important component of performance for EM corporate bond funds, accounting for more than a third of the 7% year-to-date return in the asset class this year, according to research from Barclays, as yields have compressed considerably since the start of the year.

Read more: IFR

 
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