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2014.07.1113:56:00UTC+00Emerging Market Dollar Bonds Do Not Appear to be in a Bubble

Quotes from Capital Economics:

- The "stripped" spread over US Treasuries of the JP Morgan EMBI+ index of emerging market dollar-denominated bonds recently dipped below 275bp, in the process reaching its lowest level in more than a year. 

- We doubt the rally will continue, but don't think the spread is likely to balloon. Our forecast is that it will end next year at 315bp, as a gradually less accommodative Fed dulls investors' appetite for risk.

- Indeed, the spread of the EMBI+ remains rather high in relation to, say, the spread over Treasuries of similarly-rated US corporate bonds, which has also fallen sharply over the past year or so. The upshot is that we are not convinced that there is a big bubble in the prices of emerging market dollar-denominated bonds that will burst soon.

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