UBS Says Don't Fret as Emerging Bond Exodus Tops Taper Tantrum's

(Bloomberg) -- Remember how fast foreign investors fled emerging-market bonds during the 2013 taper tantrum? It’s even quicker now.

Investors yanked more than $5.5 billion from the markets since April 16 as 10-year U.S. Treasury yields rose past 3 percent and the dollar gained, according to the Institute of International Finance. That’s almost $100 million more per day than during the tantrum five years ago.

Yet Alejo Czerwonko, an emerging-market strategist at UBS Wealth Management in New York, says it’s way too soon to panic.

"The global economy is stronger and EM external vulnerabilities much less significant," said Czerwonko, who is overweight emerging-market sovereign bonds. "We expect uncertainties to dissipate, credit spreads to tighten and EM credit to post total returns in the low- to mid-single-digit percentage range over a six-month horizon."

If the market reaction is any judge so far, Czerwonko may be right. The iShares JPMorgan USD Emerging Markets Bond ETF fell 1.9 percent in the second half of April, a smidgen of its 14 percent plunge in May and June of 2013.

Developing nations in Asia accounted for some $7.8 billion in debt and equity outflows over the course of April. Foreign demand for Europe, Africa and the Middle East was subdued. Not every region suffered a retrenchment: Latin American securities had $6.8 billion of inflows.

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