Emerging market bonds traditionally run into trouble when the U.S. Federal Reserve raises interest rates. John Bellows, portfolio manager for Western Asset Management, does not think investors should flee the space despite the historical precedent. ‘The yield advantage is significant with Mexico bonds at 6%, Indian bonds at 8%, or Brazil at 12%. That’s a significant yield advantage that will add value and the fundamentals in emerging markets are starting to look a bit better,’ said Bellows. ‘The People’s Bank of China has been easing aggressively. They’re supporting their economy. The balance in oil prices helps. And you’ve also seen meaningful structural reforms in places like India and Mexico.’ As to when the Fed takes action, Bellows believes that Fed Chair Janet Yellen and her crew will make their first move in September provided the economic data continues to show progress. The market, however, is currently pricing in a December hike in his view.
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