Treasury 10-year yield rises again as investors turn to emerging markets

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Nov 24, 2020
  • EM corporate fixed income gained 5.6% in 2020
  • Investors are showing an increased interest in the emerging market corporate bonds
  • The Treasury 10-year yield is up 2.28% today to hit 0.88%

Investors are rushing to purchase debt across various sectors in an effort to benefit from emerging companies from countries outside of the United States. In the meantime, U.S. Treasury yields are rising as investors embrace risk.

Fundamental analysis: Risk on trading environment 

Inflows into emerging bonds are in the green for the first time in 8 months, with an inflow of $3.5 billion during last week, the fourth-largest in history, Bank of America said.  

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While the details regarding the hype for the emerging markets remain unclear, fund managers believe that investors are now more willing to take risks following the passing of the U.S. presidential election and positive developments on coronavirus vaccines. 

“The Fed has indicated it will not hike rates for a long time and in this environment, the search for yield will continue and intensify,” said Rodica Glavan, head of emerging market corporate fixed income at the asset management company Insight Investment.

“People need to put money to work and as inflows come in they will need to be invested and EM corporates stand to benefit.”

Since the start of 2020, EM corporate fixed income gained 5.6%, lower than 30-year Treasury bonds, but better compared to its fixed-income counterparts such as U.S. corporate high-yield and emerging market sovereign, the bank said.

Investors are being attracted as emerging market corporate bond spreads are currently standing at around 320 basis points, compared to the 255 basis points level registered in February, suggesting potential for additional returns. 

Some of the attractive options include Brazilian airline bonds, which are being monitored by Glavan, who already holds a stake in Mexican energy giant Pemex.  

Furthermore, emerging market debt manager Alejandro Arevalo cited iron ore, copper and zinc producers in South America, ports in the Middle East and India, as well as tourism companies in Egypt as appealing choices.  

Technical analysis: Yields move higher

Treasury 10-year yield is up 2.28% today to hit 0.88%. These are not very attractive returns, hence investors are likely to look for returns elsewhere. 

As seen in the chart above, the benchmark 10-year yield is now trending within a parallel ascending channel as investors shift their funds to higher yielding stocks. 


Investors are showing an increased interest in the emerging market company bonds, partly thanks to recent COVID-19 vaccine developments and the passing of the presidential election in the United States.

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