For fixed-income investors, it's time to leave America
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“We own China dollar bonds,” says James Barrineau, co-head of emerging market debt at Schroders in New York. “You get single-A-rated debt at generous spreads versus the rest of single A debt out there,” he says of the price differentials between China’s investment grade bonds, Treasurys and other emerging market bonds of similar rating.
If the U.S. and Europe continue cutting rates to zero, making it impossible to hold a conservative investment portfolio of domestic fixed-income securities in retirement, then it is only a matter of time before emerging markets start creating products allowing for foreigners to invest in local bank CDs or making it easier for retail investors to invest in their bond markets.
The J.P. Morgan Government Bond Index for emerging markets is yielding 5.67%. The total return on emerging market investment grade debt is 11.59%. Institutional investors have been doing it for years, but are mostly underweight, preferring domestic stocks and a stable local Treasury market that has been supported almost entirely by the Fed for 10 years.
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