BlackRock Money Manager Kept Awake at Night Over Threats to Bond RallyBy
End to bond programs and rising interest rates a risk: Bisat
Impact on emerging market bonds won’t necessarily be ‘fatal’
Amer Bisat says emerging-market bonds are in a sweet spot, but there’s a niggling question: when will the good times end?
The frenzied rush that helped ease the average rate on bonds across developing markets to the lowest level since 2013 has been fueled by near-zero interest rates and bond buying programs in developed nations. The Federal Reserve is now preparing to shrink its $4.5 trillion balance sheet and the European Central Bank will slow debt purchases.
“This is obviously what keeps me awake quite a bit,” Bisat, a New York-based emerging markets money manager at BlackRock Inc., said in an interview in Bahrain. “The question that we all ask ourselves all the time is once that excessive accommodation by global central bankers reverses, how much of a challenge is it to global fixed income?”
A reversal in sentiment toward emerging-market bonds could be painful. Credit risk for the debt fell to a record this month, according to the Markit CDX Emerging Markets Index, and the extra yield investors demand to hold developing bonds is the lowest in three years.
“I’ve convinced myself that it’s not necessarily fatal," said Bisat, whose BlackRock Strategic Global Bond Fund beat 72 percent of peers this year. That’s partly because he thinks that central bankers are going to be gradual in reversing their policy of “excessive accommodation,” and partly because everyone knows higher rates are coming. “The notion that central bankers want to tighten very quickly is very clear to me.”
Emerging markets are “in a good spot,” he said. “If you look at history, there are many more episodes where higher core rates coincided with good fixed income investments than there are cases in which it hasn’t,” he said, adding that the global economy is fundamentally much healthier than before.
He also sees value in the Middle East, including Egypt, which is implementing an economic reform program backed by the International Monetary Fund. The country is expected to approve a plan to raise 1.5 billion euros ($1.8 billion) from the sale of bonds before the end of November, Finance Minister Amr El-Garhy said on Saturday.
“Egypt is a place that has gone through a wrenching adjustment as part of an IMF program and offers good fundamental value for the yields that you’re getting,” Bisat said, adding that he’s keen on both international and local currency bonds there.
“Local currency in particular is a very interesting opportunity at this stage," he said. "It’s a fixed exchange rate, effectively very cheap level, with very high yields and a commitment to reform.”
His top fixed-income picks globally include Indonesia, Russia, Argentina and Mexico -- one of his best-performing holdings this year.
- “Russia is a place that while it might not be the most vibrant of economies, has done enough adjustment, has surpluses, their asset quality is very strong and trades cheap for political reasons”
- “Moving on to Latin America, Argentina and Mexico are probably the places that offer most value at this point. Brazil has enormous amounts of challenges. It’s had a beautiful rally, a huge rally over the last couple of years. It’s been a great performer, but looking forward it’s getting closer to the point of reckoning. The elections next year are going to be very important”
- "Across the board actually, there has been a number of re-pricing stories that have been very important. Mexico has been a very important performer” because the NAFTA negotiations have been better than expected. “Indonesia continues to be a very strong performer as well”