Emerging market (EM) corporate debt is the “final frontier” for investors seeking yield in the broader fixed income asset class, according to Eaton Vance.
The investment firm said that EM corporate debt was overlooked as there were relatively few funds dedicated to the asset class with assets totalling about $130 billion.
Eaton Vance said the asset class offered a range of opportunities with the potential for higher returns than the rest of the sector which was partly because of the premium corporate issuers typically pay over sovereign yields.
The diversity of buyers, it said, made it also more inefficient than the rest of the EM sector, meaning price movements were likely to be greater in response to country or corporate news and events.
“It provides access to long-term debt financing in size that is rarely available from domestic sources — typically issues greater than $500 million. EM exporters can borrow in the same currency as the revenues generated by their sales and given most bonds have bullet maturities, this financing channel comes with limited principal repayment burdens,” it said.
“Borrowing in the global debt market also raises the profile of the companies in the international capital marketplace and often represents the first touchpoint of the management team with international investors.”