The Case for Investing in Emerging-Markets Bonds

These once-risky investments are gaining favor among investors as developing nations are becoming more stable. Here's how to invest.

Investors once viewed bonds from developing nations as the fixed-income world's version of the lottery: The bonds' potential rewards were big, but so were their risks. Today, views on emerging-markets bonds have shifted 180 degrees. After watching these IOUs deliver dazzling gains for 15 years and witnessing dramatic improvements in the health of emerging nations themselves, many investors now view developing-nation debt as a must-have asset class.

And it's not just that emerging markets are seen as safer than they once were. Many investors look over the stagnant, debt-ridden economies of the U.S., Europe and Japan, compare them with fast-growing emerging nations -- many of which have put their fiscal houses in order over the past decade -- and conclude that bonds issued in the developed world carry at least as much risk as, if not more than, those from developing nations.

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Jennifer Schonberger
Staff Writer, Kiplinger's Personal Finance