Investors Pour Into Emerging Market Bond ETFs as Fed Cuts Rates

AFRICAN STOCKS AND FINANCESeptember 24, 2024 at 6:54 PM UTC

TLDR

Investors increase investments in EM bonds ETFs driven by Federal Reserve easing cycle
$16.1 billion iShares J.P. Morgan USD Emerging Markets Bond ETF receives $130 million inflow
Surge in inflows post-Fed rate cut; anticipations of more cuts increase appeal of developing-nation debt

Investors funneled money into exchange-traded funds (ETFs) tracking emerging-market (EM) bonds last week, driven by optimism around the Federal Reserve’s easing cycle.

The $16.1 billion iShares J.P. Morgan USD Emerging Markets Bond ETF received $130 million in inflows, while the VanEck J.P. Morgan EM Local Currency Bond ETF and Vanguard Emerging Markets Government Bond ETF saw $109 million and $40 million, respectively, according to Bloomberg data.

The surge in inflows follows the Federal Reserve’s decision to cut its benchmark interest rate by half a percentage point. Investors are positioning for further rate cuts, with expectations that lower U.S. rates will increase the appeal of developing-nation debt, which offers higher yields.

Key Takeaways

EM bonds have delivered more consistent returns than EM stocks during Fed rate cuts and in the week ended September 20, US-listed EM ETFs attracted $560.7 million in inflows, the highest since May 2024. Year-to-date, total inflows into EM ETFs have reached $4.29 billion. As the Federal Reserve continues to lower interest rates, investor appetite for emerging-market bonds is growing, leading to significant inflows into EM bond ETFs. These funds offer attractive returns in the current low-rate environment, and investors are positioning themselves for further gains as U.S. rates continue to fall.

Finance

Emerging Markets

Interest Rates

ETFs

US Fed