(Bloomberg) -- Call it a hate-love relationship. Investors are piling into the biggest proxy for emerging-market hard currency bonds, barely a month after they were spooked into a selloff by the strengthening dollar.
The iShares J.P. Morgan USD Emerging Markets Bond ETF, or EMB, took in more than $120 million for the week ending May 11, the largest inflow since January. It holds mostly U.S. dollar-bonds with more than 84 percent of its exposure in government debt. Notes from Mexico, Indonesia, Turkey and, gulp, Argentina have the largest weighting.
Much of the shift probably came because the dollar rally stalled, said Andy Wester, senior investment analyst at Proficio Capital Partners in Newton, Massachusetts. “The dollar index probably dissuades a lot of investors from investing in dollar-denominated EM debt,” he said in an interview. “So that move fading a bit in the last couple of days may have helped as well.”
That’s not to say everyone agrees. In fact, Morgan Stanley and Nomura Holdings Ltd. hold opposite views, with the New York bank saying buy the dip and the Japanese firm warning the recent slump is a harbinger of far worse to come this year.
Hard currency bonds, shunned since January in favor of their local currency counterparts, have begun to attract buyers as slumping prices open opportunities. The spread on offshore sovereign debt tightened 15 basis points in the past two days after reaching the highest since December 2016. Still, the prospect of gradual increase in developed-market yields can only be a headwind for the notes.
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