Why EM Corporate Bonds Could Be a Highly Logical Choice
A Note about Risk: The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Investing in international securities generally poses greater risk than investing in domestic securities, including greater price fluctuations and higher transaction costs. Special risks are inherent to international investing, including those related to currency fluctuations and foreign, political, and economic events. The securities markets of emerging countries tend to be less liquid, especially subject to greater price volatility, have a smaller market capitalization, have less government regulation and may not be subject to as extensive and frequent accounting, financial and other reporting requirements as securities issued in more developed countries. Further, investing in the securities of issuers located in certain emerging countries may present a greater risk of loss resulting from problems in security registration and custody or substantial economic or political disruptions. No investing strategy can overcome all market volatility or guarantee future results.
Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes.
Diversification does not guarantee a profit or protect against loss in declining markets.
Forecasts and projections are based on current market conditions, are subject to change without notice, and should not be considered a guarantee.
Correlation is a statistical measure of how two securities move in relation to each other.
Yield is the annual interest received from a bond and is typically expressed as a percentage of the bond's market price.
The BofA Merrill Lynch Emerging Markets Corporate Plus Index tracks the performance of U.S. dollar and euro denominated emerging markets non-sovereign debt publicly issued in the major domestic and eurobond markets. In order to qualify for inclusion in the Index an issuer must have risk exposure to countries other than members of the FX G10, all Western European countries, and territories of the U.S. and Western European countries. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway, and Sweden. Individual securities of qualifying issuers must be denominated in U.S. dollars or euro, must have at least one year remaining term to final maturity, at least 18 months to final maturity at point of issuance, and a fixed coupon. In addition, investment grade-rated bonds of qualifying issuers must have at least 250 million (EUR or USD) in outstanding face value, while below investment grade-rated bonds must have at least 100 million (EUR/USD) in outstanding face value. The index includes corporate and quasi-government debt of qualifying countries, but excludes sovereign and supranational debt.
The BofA Merrill Lynch U.S. High Yield Index tracks the performance of U.S. dollar-denominated below investment-grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, Standard & Poor’s, and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule, and a minimum amount outstanding of $100 million.
The BofA Merrill Lynch U.S. Corporate Master Index is a market value-weighted index that tracks the performance of U.S. dollar-denominated investment grade-rated corporate debt publically issued in the U.S. domestic market. To qualify for inclusion in the index, securities must have an investment-grade rating (based on an average of Moody's, Standard & Poor’s, and Fitch) and an investment grade-rated country of risk (based on an average of Moody's, Standard & Poor’s, and Fitch foreign currency long-term sovereign debt ratings). Each security must have greater than one year of remaining maturity, a fixed coupon schedule, and a minimum amount outstanding of $250 million.
J.P. Morgan Corporate Emerging Markets Bond Index Broad Diversified (CEMBI BD): The CEMBI is a market capitalization-weighted index that tracks total returns of U.S. dollar-denominated debt instruments issued by corporate entities in emerging markets countries. The index limits the current face amount allocations of the bonds in the CEMBI Broad by constraining the total face amount outstanding for countries with larger debt stocks.
The credit quality ratings of the securities in a portfolio are assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor's, Moody's, or Fitch, as an indication of an issuer's creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities.
Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
The opinions in Market View are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.