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Did I miss the memo? Emerging Markets Bonds

edited November 2016 in Fund Discussions
EMB and PCY getting absolutely crushed today! That after what occurred in Treasuries yesterday. The rout in Treasuries since their most recent bottom (BREXIT) would qualify as a major rout in so short of a time. And the party in junk munis appears to be over. As for junk corporates, off hand, can't recall historically seeing such a divergence with the equity run as the past five days. So I guess we will be seeing headlines about is the long bull run in bonds (since 1982) finally over. A headline we have seen many times in the past, albeit not with the type of adverse price action we have recently been seeing.

Edit: and the decline in HYD is pretty staggering too today - giving up almost all its YTD gains in one session.

Comments

  • Re. EM bonds, last night I took a brief sachet thru yesterday's field of damage, and it looked like the extent of any MF's swoon was correlated with its ave. duration, generally speaking, as you would expect it to do. I didn't note a single exception to that.

    However, among the group of funds with higher duration/greater pullback, there was something else going on. Some lost alot more than others, some as much as 1.3%. Currency effect, whereby if you had a big position in the "wrong" country, risk premiums for the sovereign increased quickly and bit you hard?
    http://www.bloomberg.com/news/articles/2016-11-10/ringgit-slumps-with-korean-won-as-trump-win-fuels-trade-concern

    re. HY domestic junk, I don't have a clue what could be banging that. Time will tell, although--- if it were to continue on like back in January--- we could have (another) buying opportunity handed to us.;)
  • edited November 2016
    It's pretty wild, so I had to doublecheck this on the Powershares site after seeing it on M*: PCY (US$) and LEMB (local currency) both fell in price today ~ 2x the drop in the IIV, resulting in very wide discounts, for etf's.

    Here's PCY, discount now of 1.9%, and here's LEMB, discount of 3.4%. From the charts a little way down from the top of the M* page, it looks like these may be the widest discounts ever for both.

    Note also the very large trading volume.

    Edit: Junkster mentioned HYD - same thing going on there, too.

    Looks like some panicky selling happening ... or maybe several big players adjusting allocations at the same time for the new national order? You'd have to bet EM oef's will be down much less than the etf's today.
  • edited November 2016
    AndyJ said:

    It's pretty wild, so I had to doublecheck this on the Powershares site after seeing it on M*: PCY (US$) and LEMB (local currency) both fell in price today ~ 2x the drop in the IIV, resulting in very wide discounts, for etf's.

    Here's PCY, discount now of 1.9%, and here's LEMB, discount of 3.4%. From the charts a little way down from the top of the M* page, it looks like these may be the widest discounts ever for both.

    Note also the very large trading volume.

    Edit: Junkster mentioned HYD - same thing going on there, too.

    Looks like some panicky selling happening ... or maybe several big players adjusting allocations at the same time for the new national order? You'd have to bet EM oef's will be down much less than the etf's today.

    Exactly and why I would never ever buy a bond ETF.

    Edit; well, that was a shock. The open end fared worst than I thought with some of the emerging markets bond funds on my screen down 3% to 5% (OEMYX)
  • edited November 2016
    Hum?

    Don't mean to rub it in. But us who has some PRPFX in our holdings are wondering what all the excitement is about?

    Just another dull day ... up a modest 0.44%
    :)
  • hank said:

    Hum?

    Don't mean to rub it in. But us who has some PRPFX in our holdings are wondering what all the excitement is about?

    Just another dull day ... up a modest 0.44%
    :)

    Yes, PRPFX has certainly come to life this year with impressive double digit gains. I certainly didn't mean to imply I have emerging markets bonds as they have always been too volatile for my tastes. Trying to hold tight with open end floating rate funds. Hope rates keep rising so CDs can become competitive again and that is where I will live out the rest of my life.

  • edited November 2016
    Wild day. Been traveling all day, so was shocked to look at the score-card this evening.

    Gaging by my motley collection of funds, domestic rates must have really spiked the past couple days, causing the dollar to soar and knocking down international bonds badly (as well as domestic bonds). The rise of Mr. T will get blamed, but don't forget that the Fed was pretty much on hold until after the election and may feel free to start jacking up rates soon. People are reacting to that reality as well.

    My hunch is there's a lot of over-reaction now. A lot of people will sell bonds and income funds into this rout and regret it in a month's time. Just a guess. (Ya gets what ya pays for here.)

    Thanks for clearing that up Junkster. I didn't think you were the fella. There's somebody here who I think has quite a lot of EM and REIT exposure. Ouch!
    -

    (Edit: Corrected earlier misspelling of gaging. I am not yet "gagging" on my funds - but may soon be.)
  • Fed was pretty much on hold until after the election and may feel free to start jacking up rates soon. People are reacting to that reality as well.
    Muni funds are also taking a hit as well.
  • Hank, I'm actually going to free up some money today to move back into PRPFX. Haven't owned it for about 5 years, but with how things have played out this week I think PRPFX with it's gold and Swiss Frank allotment plus the commodities sector may be some what of a safe haven. Anyway, thanks for the reminder on this fund.
  • edited November 2016
    Yup, it's currency effects and some bad carry trades being unwound, far beyond my pay grade to fully understand:
    http://www.bloomberg.com/news/articles/2016-11-11/carry-trades-collapse-as-emerging-market-yield-advantage-shrinks

    The duration effect remains rather striking (to me). If dollar-denominated with a short portfolio duration (as many MFs were not), there has been limited damage. e.g. DLENX. Of course, the longer a big shift plays out, the less likely it is that any fund will escape; it will reach the most sheltered, as well as their little dog, too.
  • Global real estate under a lot of pressure. My ARYVX took a big hit this week. Utilities have also been hit hard.
  • True. EM bonds (PREMX) hammered. PNM (electric utility) post-election stood at 32.30. It held up, closing Friday at 32.25. TRGRX (global R.E.) got beat up.
  • edited November 2016
    hank said:

    (Edit: Corrected earlier misspelling of gaging. I am not yet "gagging" on my funds - but may soon be.)

    May not be far from the truth, Hank: the former bond trader who's a frequent poster at M* is calling the recent price action a "pukeathon."
  • edited November 2016
    Junkster said:

    That after what occurred in Treasuries yesterday. The rout in Treasuries since their most recent bottom (BREXIT) would qualify as a major rout in so short of a time.

    Foretold here and posted on this site. I'm watching high yield bonds for an entry point. This move has nothing to do with the reality of the the USA/world economy. This move may go on until after the state of the union speech.
    The emerging markets action is probably more a factor of a stronger US$, which is due to the increase in treasury yields. If anything, the higher US$, if it continues, will slow the US economy due to lower exports. Then the pressure should be for lower rates!

    http://www.forbes.com/sites/petertchir/2016/10/22/the-scariest-chart-for-bond-yields/?utm_source=yahoo&utm_medium=partner&utm_campaign=yahootix&partner=yahootix&yptr=yahoo#69616508ed70
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