Incorporating Emerging Market Bonds in a Portfolio

Bonds issued by sovereign governments typically offer investors cash flow in the form of coupon payments and principal repayments that are backed by the ability of the government to levy taxes.  This type of investment asset can be of great benefit to investors, so long as the governments are able to pay the contractually promised amounts. 

For countries that are subject to doubt regarding their future ability to meet debt obligations, as is often the case with developing countries, investors require a relatively higher interest rate to account for the increased risk of bond default.  The resulting higher rates can make bonds issued by emerging markets an attractive investment option in an appropriately diversified portfolio. 

As this Wall Street Journal article notes, even in the middle of the novel coronavirus pandemic, investors are buying significant amounts of investment-grade emerging market bonds to provide diversified yield for their portfolios.

 Read more on this subject here: https://www.wsj.com/articles/investors-buy-up-debt-from-stronger-developing-countries-11587893504