Emerging-market investors from Aegon USA Investment Management to JPMorgan Asset Management are dialing back their riskiest bond bets as the deepening selloff in global credit markets threatens to derail a stellar run for debt in the developing world.
Dollar debt from countries in the emerging world returned 1.4% over the past year despite the recent turmoil that has sent yields on US Treasuries to the highest in nearly two decades. Even with oil above $100 a barrel and investors bracing for higher-for-longer global interest rates, credit spreads are at their tightest since 2007, raising alarm bells for money managers who say the bonds are bound to sell off.
“When we have rising government rates, I get a little concerned on what that does to the level of spread,” said Jeff Grills, the head of EM debt at Aegon. “When I look at where are the great opportunities, they are hard to find.”
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Grills recently trimmed his exposure to Colombia, while adding debt from higher-rated credits like Indonesia, Saudi Arabia and the Philippines.
