What is a Emerging Market Bond Index?

A. Leverkuhn

An emerging market bond index is a financial tool used to measure the total performance of a collection of bonds. In an emerging market bond index, the included bonds are those of governments of nations considered to be “emerging markets.” A country designated as an emerging market is one where a good number of economists predict explosive economic growth in future years.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

In order to understand an emerging market bond index, financial novices should gain a better idea of the bond market in general. A bond or debt security is an investment tool that allows single investors to profit from the debts of governments or corporations. A borrowing party issues the bond, and investors buy into it, becoming lenders to benefit from interest rates on the borrowed capital. Two different kinds of bonds are municipal bonds issues by governments, and corporate bonds issued by companies. Finance pros usually consider municipal bonds to be a bit safer on average than corporate bonds.

Each type of bond has its own interest rate, which translates into specific projected yields. Single investors buy into bonds based on these yields. Bond fund managers, who collect good bond investments on behalf of their clients, also pay attention to the yields that a bond is supposed to pay up until the time of maturity, when the borrower pays off all of the remaining loan and the bond is no longer generating yield.

Many financial professionals contend that emerging market bonds generally offer higher yields than government bonds issued in countries without “emerging market” designation. This leads a greater class of investors to look for opportunities to get involved in the emerging market bonds. A growing global financial market makes it easier to buy into foreign bonds and profit from economic growth in emerging markets around the world.

The emerging market bond index can help show investors just how much emerging market bonds can generate in terms of yield. This kind of financial measurement can also show the bond fund managers whether they have chosen well in what they included in a specific mutual fund or exchange traded fund. In general, economists, money managers, financial analysts and investment counselors will all keep an eye on an emerging market bond index in order to be informed about how these kinds of debt securities are generally performing relative to the greater market and other financial opportunities.

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