Post-Brexit yield clamour brings fresh bid for emerging currency bonds

miércoles 13 de julio de 2016 11:52 GYT

By Karin Strohecker and Sujata Rao

LONDON, July 12 (Reuters) - Following stellar returns in the first half of 2016, emerging currency debt is being swept up in a fresh rally re-kindled by Britain's Brexit vote that is crushing bond yields across most developed markets.

Between January's global market rout and the end-June selloff triggered by Britain's vote to leave the European Union, bonds denominated in emerging currencies returned 15 percent in dollar terms, better than almost every other asset class this year

The half-year also saw a number of big-name funds ramp up exposure to local debt, some such as Blackrock for the first time in years. Templeton's star fund manager Michael Hasenstab said Brazilian and Mexican bonds were among the top holdings in his $50 billion flagship fund .

Few had expected that run to be matched in the July-December period. But in fact, the momentum may be accelerating.

What the Brexit vote has done is push an additional $1 trillion or more worth of bonds from the developed world into negative-yield territory, taking the tally to over $10 trillion.

Expectations for a U.S. Federal Reserve interest rate rise have moved deep into next year, the Bank of England is likely to cut rates this week and policymakers elsewhere seem intent on dishing out more stimulus.

"This is a world looking for any country with real yields," said Steve Ellis, portfolio manager at Fidelity Worldwide Investments.

While only 6 percent of global bonds currently offer yields above 2 percent, emerging local bonds pay an average 6.2 percent, 490 basis points above U.S. Treasuries, he said.   Continuación...