Fed Fuels Doubling Of EM Debt

March 12, 2014

European Central Bank issues report on the Fed's QE effect on emerging market corporate debt.

On Tuesday, the European Central Bank released a working research paper that examines the relationship between the Federal Reserve's quantitative easing and global bond issuance. The results are stunning. The authors conclude that emerging market corporations have issued twice as much debt as a result of QE than they otherwise would.

Emerging Market Debt Bonanza

As the chart shows, emerging market debt has rocketed from a longer-term average of roughly 30 percent of GDP to almost 80 percent. With the Federal Reserve now reversing its large-scale asset purchases, emerging market debt may be in trouble. Watch out for the following ETFs:

  • The WisdomTree Emerging Markets Local Debt (ELD | B) and the iShares Emerging Markets High Yield Bond (EMHY | C) both hold high-yield debt. The former holds sovereign debt; the latter holds corporate debt.
  • The WisdomTree Emerging Markets Corporate Bond ETF (EMCB | C)and the iShares Emerging Markets Corporate Bond ETF (CEMB | C) hold investment-grade and high-yield debt issued by emerging market corporations.

Emerging 3-05-2

Chart courtesy of StockCharts.com

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