Emerging-market bonds posted their biggest weekly retreat in eight months as investors shift assets into equities on prospects higher corporate earnings will bolster stocks.
Developing-nation bonds sank 1.4 percent this week, the biggest slide since the five days ended May 18, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index. The gauge of dollar-denominated debt slipped 0.1 percent to 676.42 in New York. The extra yield over similar-maturity U.S. Treasuries widened 19 basis points this week, the most since June, to 265 basis points, or 2.65 percentage points.
About a sixth of the 642 largest developing-nation companies have reported fourth-quarter earnings and have posted an average sales growth of 256 percent, while net income improved by 354 percent, according to data compiled by Bloomberg.
“Many people are in emerging market bonds for the yields, and now the yield story isn’t so attractive and the risk story is beginning to suggest you shouldn’t be there,” Jeremy Brewin, who oversees $5 billion as head of emerging market fixed income at Aviva Investors Ltd. in London, said today by phone. “The return expectations on equities, given most people’s forecasts for earnings over the next business cycle, are somewhat higher than Treasury yields and are also higher than the returns on emerging-market hard currency debt.”
Equity funds lured six times the money that went into bonds worldwide in the week ended Jan. 30, according to a Citigroup Inc. report that cited EPFR Global data. In emerging markets, total fund inflows slipped to $3.6 billion from $4 billion the previous week, Citigroup said.