(Bloomberg) -- Investors are pulling out of exchange- traded funds for emerging-market bonds at the fastest pace since November after a three-month rally pushed down yields and dimmed the allure of the securities.

U.S.-based ETFs focused on developing-country bonds have posted a net outflow of $400 million this month, according to data compiled by Bloomberg through yesterday. That’s bigger than any full month since November, when they lost $406 million.

The extra yield investors demand to hold dollar-denominated debt in developing nations over U.S. Treasuries fell to the lowest since May 2013, when emerging-market assets sank after the Federal Reserve signaled it would trim stimulus. Dollar bonds in developing countries have returned 6.3% this year after losing 5.6% in 2013, the most since Bloomberg started compiling the data in 2010.

“After a big rally, it’s becoming tricky now,” Bob Maes, a money manager who helps oversee $4.9 billion in developing- nation assets at KBC Asset Management SA, said by phone from Luxembourg. “The spread is very tight, susceptible to any rise in U.S. Treasury yields. We’ve reduced our outlook for emerging- market external bonds to neutral.”

The yield spread over Treasuries fell yesterday to 270 basis points, or 2.7 percentage points, the smallest since May 28, according to data compiled by Bloomberg.

Investors pulled $190 million out of the $4.1 billion iShares JPMorgan Emerging Markets Bond ETF, the largest of its kind, on May 1, the biggest one-day outflow since January 2013. A month earlier, the fund attracted a record one-day inflow of $210 million. The ETF rose 0.4% to $113.77 today, gaining for a fifth day.

‘Quite Bullish’

The ETF outflows came just as some investors including Jeffrey Gundlach, the chief executive officer at the $50 billion investment firm DoubleLine Capital LP, are turning optimistic. Gundlach said in a Bloomberg News interview on May 6 that he’s “quite bullish” on emerging-market debt.

JPMorgan Chase & Co. analysts kept their neutral recommendation on emerging-market government and corporate bonds yesterday, saying in a client report that “tight valuations” are balanced by stable Treasury yields.

Ten-year Treasury yields have stayed between 2.58% and 2.8% since February. Fed Chair Janet Yellen said in testimony today to the Senate Budget Committee that Treasury yields aren’t likely to increase in the absence of a more robust economic recovery.

‘Compressed’ Yields

While investment-grade bonds are vulnerable as their valuation becomes stretched, lower-rated notes are still attractive because global interest rates remain low, said Jim Barrineau, New York-based director of Latin America fixed-income at Schroder Investment Management.

At 11.9%, the average yield of Venezuela government bonds is 965 basis points higher than Treasuries, according to data compiled by Bloomberg. That compared with an average yield of 6.25% on Greece bonds, which share a B- rating with Venezuela at Standard & Poor’s.

“For non-investment-grade corporates and high-yield sovereign bonds, they can still rally given the compressed global yields,” Barrineau said by phone.

Compared with U.S. junk bonds, developing-country debt still looks cheap, said Julian Jacobson, emerging-market bond manager at Fabien Pictet & Partners Ltd., which oversees $200 million in assets.

Yields on emerging-market government bonds are 126 basis points lower than U.S. high-yield corporate bonds, compared with an average difference of 205 basis points over the past two years, according to data compiled by Bloomberg. The Bloomberg emerging-market index has an average rating of BBB-, the lowest investment grade, or four steps higher than U.S. junk bonds, which are rated B+.

“On a relative basis, emerging markets have plenty of room to go,” said Jacobson in a phone interview from London.

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