How did the high yielding countries perform against the low yielders ?

In this blog entry, I will take a look at the performance of the emerging market domestic bond markets. Specifically, I want to find out if the countries with high government bond yields outperformed the countries with low government bond yields.

Why Brazilians like to fight and how they build up their public debt deficit

I watched yet another humiliation of Brazil last week when they lost for the last time against Holland in the "losers match", fighting for the third place at the 2014 World Cup in football. Auch, I simply did not expect to see Brazil fall from grace like that. Add to that - they were humiliated on the world stage and this stage was set in Brazil. It does not get any worse than that.

The behaviour of banks during the crisis and why another bank crisis is unavoidable

Several banks were bailed out as a result of the recent crisis. But, how did banks behave during the crisis - did banks reduce risk as the financial crisis unfolded, or did they do the exact opposite? This is an interesting question - and the key to understanding why future bank failures will happen again. 

The return of the carry trade?

OK, that is probably stretching it a bit, but it looks like the carry trade has returned to us for a while in the Emerging Market government bond markets. But the question is for how long.

As I have already mentioned in the first blog post, the Emerging Market countries that suffered the most in 2013 were the “fragile five”. The five countries – Turkey, Brazil, India, South Africa and Indonesia – were running large current account deficits and when investors pulled money out of Emerging Market last year, the fragile five were hit the hardest.

Ok, now I cannot avoid it any further. How can I claim a blog on Emerging Markets with no comments on the situation in Ukraine. So, here it goes.

First, let´s take a look on the main fixed income indicator of Ukraine – the cash price on the Ukrainian government bond (USD denominated) that matures in the beginning of June this year (the technical term is UKRAIN 7.95 06/04/14 $). The cash price was slightly above 100 in January. But, as the situation escalated with demonstrations that turned more and more violent, the fall of Viktor Yanukovych and the current situation in the Crimea, the price of the short dated bond has dropped to a current price of around 93. With a current price of 93 and less than 3 months to maturity, the bond yields 41 %.

Foreign ownership of Emerging Market local currency bonds has been on the rise since the Lehman default but has also caused the asset class to become more volatile.

The Lehman bust – and the financial crisis – forced the central banks in the developed world to keep interest rates low in order to spur economic growth. Since then, yields on developed market bonds have been falling. This created a huge inflow into higher yielding local currency Emerging Market bonds.  There was indeed a hunt for yield. 

I work in finance as a portfolio manager. From time to time, I will blog about macroeconomics, finance, emerging markets and politics.

All in all, I have 15 years of experience working in finance and investing money. I received an MSc in Economics from London School of Economics and a BSs in Economics from the University of Copenhagen.