The Merits of Emerging Market Sovereign Bonds – Comparing Hard and Local Currency Debt

Increasing concerns about the deterioration in a number – but not all – developed world government balance sheets, together with increasing concerns about so called “fiscal dominance” over monetary policy has encouraged investors to reconsider the composition of their fixed income portfolios and look at emerging markets (EM) in a new light. We at Colchester have argued for some time that relative balance sheet strength, sustained adherence to policy orthodoxy, the shift to predominately domestic funding and the potential return on offer in a number of emerging markets has increasingly made them attractive relative to their developed world counterparts and other sectors of the fixed income market.