Investors and debt strategists predict that developing nations' bonds will bounce back and surpass U.S. Treasuries in the next few months, Bloomberg reports.
Developing nations' fixed-income securities fell in the first two weeks of this month following comments from the Federal Reserve on inflation fears, prompting speculation the Fed will raise interest rates in the U.S., thereby making emerging markets less attractive.
JPMorgan Asset Management, TCW Group Inc. and CreditSights Inc. are among the firms saying that the two-week slide in emerging-market debt is temporary and won't change the booming success of the sector.
Gunter Heiland, an emerging markets bond manager at JPMorgan, said, "We aren't fazed by the decline and think of it as a buying opportunity, This decline is a short-term technical market correction." Specifically, Heiland is interested in debt from Russia, Venezuela, Peru and Brazil.
TCW's emerging-market debt manager Nathan Sandler said, "Emerging-market investment fundamentals are still strong, very strong." He recommends buying Brazilian government bonds.
Emerging-market debt outperformed U.S. Treasuries in 2003 and 2004. In 2003, developing nations' bonds returned 28.89%, while U.S. Treasuries returned 2.26%. In 2004, developing nations bonds returned 11.77 %, while Treasuries delivered 3.5%.
Since the start of 2005, emerging-market debt has posted a 7.09% return, whereas Treasuries have returned only 1.64%.
"Except for a global recession, the emerging markets should be able to withstand the transition to higher interest rates," said TCW's Sandler.
"The emerging market is still pricing in a low probability of significant Fed tightening from current levels," said Christian Stracke, head of emerging-market debt strategy at CreditSights