Although global sovereign bonds have been witnessing a sell-off, Chinese government bonds have been relatively stable. This is partly due to China’s economic recovery and partly due to persistent inflows into its sovereign bonds. The recent bout of volatility demonstrates the diversification benefits that Chinese government bonds may bring to global bond portfolios given their low correlation with other major bond markets.
Emerging markets have not experienced the humanitarian crisis that many feared as the pandemic spread. This has enabled EM assets to recover something reflected particularly in the recovery of emerging market debt. As these concerns around the COVID-19 threat abate, investor attention has refocused on potential opportunities in EMD. But not all segments of the market will hold the same appeal.
The Emerging Market Debt (EMD) market has grown strongly over the past two decades to account for more than 25% of the global bond market while trading liquidity has improved. We think this makes it too big for global bond investors to ignore.