Growing interest in international bonds, particularly in emerging markets, has emerged amidst discussions around the “Sell America” narrative and capital shifting from U.S. markets. Joanna Gallegos, co-founder of BondBloxx, highlighted this trend on CNBC’s “ETF Edge,” noting that emerging market bonds were the top performers in fixed income for both 2023 and the previous year. For instance, the iShares JPMorgan USD Emerging Markets Bond ETF (EMB) achieved over a 13% return, paralleled by BondBloxx’s JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD).
Factors driving this interest include the weakening of the U.S. dollar, concerns regarding the fiscal situation of the U.S. amid rising spending and deficits, and the impact of current foreign policy. Gallegos emphasized that the focus on non-U.S. assets stems from currency performance and a desire to capitalize on strong returns rather than a belief that the U.S. market is losing its attraction. Despite these developments, Morningstar data indicates that U.S. markets continue to thrive, with domestic ETFs logging an unprecedented $156 billion in net inflows in January. International equity ETFs also experienced a record inflow of $51 billion.
While fears about a private credit bubble persist, Gallegos affirmed that the U.S. remains a strong player in the fixed income market, offering significant investment opportunities alongside an expanding international portfolio. She noted that bonds are evolving beyond their traditional defensive role, becoming a viable source of income and growth in investment strategies.
Why this story matters:
- The shift towards international bonds indicates changing investment strategies among U.S. investors, influenced by currency and performance trends.
Key takeaway:
- Emerging market bonds have shown strong performance, attracting investor interest while maintaining a core commitment to U.S. assets.
Opposing viewpoint:
- Critics argue that increasing reliance on international markets may expose investors to higher risks linked to geopolitical and currency fluctuations.
