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Emerging market debt soars

The Financial Times reports that trading volumes of emerging market debt has soared to a record high of $6,500bn ($6.5 trillion dollars), according to a recent industry study.

From Joanna Chung's FT article, "Emerging Market Debt Trade Soars":

"The emerging markets investor base has evolved from one of highly active, short-term traders into one comprising more stable, buy-and-hold investors," said Joyce Chang, global head of emerging markets research, foreign exchange and commodities at JPMorgan, adding that non-traditional emerging market investors now accounted for more than half of sovereign debt volume at her company compared with a 10 per cent share in 1998.

These developments come at a time when emerging market governments are increasingly borrowing in their own currencies, rather than the dollar or the euro.

At the same time, yields in local currency debt markets have become relatively more attractive than yields in hard currency markets.

This is partly because strong demand has pushed up prices on dollar-denominated debt and compressed their yields. At the same time, the supply of external debt is shrinking.

Investors still feel the need to go somewhere, anywhere, for yield. See, "Chasing EMBI: The Hunt for High Yield", for more on this trend.

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