Markets

Emerging market debt could be in trouble according to JPMorgan. With a seemingly never-ending Russia-Ukraine crisis as well as rising borrowing costs low grade emerging market debt could be in trouble. A note said that almost half of the sample of the 52 countries are carrying high repayment risk. Generally speaking, spillover risk is high if Russia defaults and Ukraine has to res-structure. All of this is compounded by rising yields which makes repayment even more difficult.


Finsum: For those looking for solutions to rising volatility be careful chasing emerging market debt as a response.

The ETF sell-off is rampant as a response to the wild and sudden market volatility, but its time to get rid of your fixed income funds? Some experts are saying there is a breakdown in the traditional 60-40 portfolio, but outflows aren’t present yet at the rate in bond funds. This is despite funds like AGG being down over 10% YTD. One possible reason for this is that investors are more worried about macro factors than most other factors. Over a third of advisors are worried about inflation, rates, and geopolitics whereas only one in ten are as concerned with volatility. This is could cause a shifting of flows into more stable macro flavored products like bond funds.


Finsum: We’ve said it once we can say it again, bond fund holders aren’t eyeballing returns like equity ETFs they are holding for security. 

There has been a sharp uptick in the high-value bond ETF trades in the last 12-months which most investors are attributing to activity from large institutional investors. Transactions are up as much as 36% on some platforms from the previous year. This has been part of a longer more ongoing trend that has been successful for many bond funds. Since the GFC, investors have questioned the resiliency of these funds to economic downturns, but regulators and investors alike are pleased with their performance in the covid pandemic. Just as important to this is the support from the Fed and Fiscal policy to the economy. Stepping in with bond relief has helped these ETFs. Finally, the increase in investment in bond ETFs has actually led to tighter underlying spreads in bond markets themselves and reflects better liquidity.


Finsum: Many believe that over-investment in index funds could be disruptive to equity volatility over time, but it appears to be stabilizing bond spreads.

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