Investors Really Like Emerging Markets' Bonds ETFs, Too

In the wake of the disappointing May jobs report, which significantly reduced the chances of the Federal Reserve raising interest rates this month or next month, data suggest investors are renewing their affinity for emerging markets exchange-traded funds.

The same is certainly true when it comes to ETFs tracking emerging markets sovereign debt. Actually, investors have been enthusiastic about this asset, probably more so than developing world equities, for essentially all of 2016 to this point.

EMB Skids Ahead

Bloomberg had a great anecdote in an article out Tuesday regarding this topic. Investors have poured so much cash into the iShares JPMorgan USD Emer Mkt Bnd Fd ETF EMB in recent weeks that the ETF is now the largest emerging markets bond fund of any stripe in the world.

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EMB has nearly $7 billion in assets under management, making it larger than any other active or passive fund offering exposure to emerging markets debt. EMB has an equivalent trading in Europe that has about $5 billion in assets, making that ETF one of the largest emerging markets sovereign debt funds in the world.

PCY Is Not Too Shabby, Either

The PowerShares Emerging Markets Sovereign Debt Portfolio PCY, EMB's primary rival in the U.S. and the second-largest ETF of its kind trading in New York, has not been a slouch either. Year-to-date, PCY has added $388.5 million in new money, a total exceeded by just four other PowerShares ETFs.

“According to Markit’s ETP analytics, ETFs tracking emerging market bonds saw $567 million of inflows last week, the largest since the start of May, as the asset class gathers momentum,” said Markit in a recent note. “The rise in the fixed income ETF as a way to gain emerging market debt exposure is best exemplified by the iShares J.P. Morgan USD Emerging Markets Bond ETF, which has seen its AUM increase by 74 percent since February 8.”

It is easy to understand investors' thirst for developing world debt. As Benzinga reported Wednesday, “A whopping $8 trillion in global investment-grade sovereign debt currently sports negative yields, meaning investors that make those bets will lose money. The World Gold Council adds 40 percent of global sovereign debt sports yields below 1 percent.”

With piddly yields on developed world bonds, EMB and PCY, with 30-day SEC yields of 5 percent and 5.3 percent, respectively, look all the more enticing.