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Flight from yield to search for yield
Weekly investor research
04 March 2019
EM’s traditional appeal is higher yield. Provided EM fundamentals are ok, it makes more sense to own EM bonds than developed market bonds, because you get paid more. During the years of Quantitative Easing (QE), the appeal of EM yield faded due to the enormous capital gains generated in developed economies on the back of QE. However, capital gains gradually erode yield and are now largely gone, leaving very substantial yield differentials in favour of EM. With EM fundamentals also looking stronger compared to developed economies, the erstwhile flight from yield in EM during the QE years is now making way for a genuine search for yield in EM for the first time since the onset of QE.