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Short corporate debt beats downtrend in emerging markets

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Year-to-date, both long-dated and short-dated bonds suffered heavy losses (Image: REUTERS/Amanda Perobelli)

Short-term corporate debt in markets emerging markets offers positive returns at a time when the rest of the asset class is suffering losses.

Buffered by yields above 23%, debt in dollar lasting less than a year has returned 0.7% this month, according to Bloomberg.

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Meanwhile, longer-duration bonds generated losses, which were 4.6% on average for bonds with a duration of 10 years or more.

Year-to-date, both long-dated and short-dated bonds suffered heavy losses as investors’ appetite for riskier assets soured.

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Emerging market corporate bonds generally have shorter maturities than sovereigns, which adds to their appeal at a time of inflation high.

As inflation erodes the value of coupon payments over time, the longer the term of the bond, the greater the risk of harming investor returns once adjusted for inflation.

This was the case this year, with losses of more than 20% for those who invested in emerging sovereign debt – three percentage points more loss than with debt issued by companies.

The average emerging market corporate debt risk premium has increased by just 4 basis points to 417 basis points since the CPI American higher than expected on September 13.

In the case of sovereign debt, the increase was 21 basis points.

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Source: Moneytimes

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