Emerging Bond Inflows of $10.4 Billion Surpass 2005 (Update3)
By Lilian Karunungan and Garfield Reynolds
April 16 (Bloomberg) -- Emerging-market bond funds received an unprecedented $1.8 billion in the past week, lifting 2010 inflows to a record, as high-yielding debt attracted global investors away from stocks, according to EPFR Global.
Currencies in emerging markets have appreciated this month, boosting returns on debt, and at the same time helping curb inflation and preserve the fixed payments on bonds. Investors in global equities pulled out $6.2 billion in the week to April 14 on prospects accelerating economic growth will prompt policy makers to withdraw stimulus measures.
Investment in developing nations’ bonds reached $10.4 billion, exceeding an all-time high in 2005, the Massachusetts- based research company said in an e-mailed statement. Inflows into U.S. floating-rate notes were also a record and all bond funds took in $5.6 billion, EPFR said.
“There’s a global reallocation going on,” said Kenneth Akintewe, a Singapore-based portfolio manager at Aberdeen Asset Management Plc, which oversees the equivalent of $221 billion globally. Given the choice between “debt-ridden countries” like the U.K., the U.S. and Japan, and “emerging-market economies with substantially good fundamentals, then you expect to see that global reallocation taking place.”
Bond Yields
Yields on 10-year local-currency notes in Brazil of 13 percent and 8.7 percent in Indonesia, compare with 3.8 percent on U.S. Treasuries, 1.33 percent on Japanese bonds and 3.11 percent on German bunds. Twenty-one of the 26 emerging-market currencies tracked by Bloomberg data have appreciated against the dollar this month, led by the Turkish Lira and Brazil’s real.
Singapore, which uses its currency rather than interest rates to set monetary policy, unexpectedly revalued its currency on April 14 after the economy expanded at a record pace in the first quarter and predicted faster inflation. Central bankers in Australia, Malaysia, India and Vietnam have all raised borrowing costs this year.
“Investors are bracing for higher prices and interest rates,” Cameron Brandt, senior analyst at EPFR, wrote in the statement dated yesterday. He highlighted interest in higher- yielding emerging-market debt, purchases of bonds with adjustable rates and sales of Brazilian equities.
The difference in yield to own bonds in developing nations instead of Treasuries narrowed to 2.31 percentage points yesterday, the least since December 2007, according to the EMBI Plus Index compiled by JPMorgan Chase & Co. The spread was 2.74 points at the end of 2009.
Emerging-market bonds handed investors a 5.8 percent return this year, according to JPMorgan’s EMBI Global Diversified Index, the broadest gauge of markets in 39 countries. U.S. Treasuries gained 1.2 percent and European debt rose 2 percent, according to Bank of America Merrill Lynch’s indexes.
Equity funds in developing nations received inflows for a ninth week, taking in $996.6 million, EPFR said. Brazil stock funds suffered $473 million of withdrawals, the biggest outflows in almost four years, on concern interest rates will rise.
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