Emerging Market Debt

Information about Emerging Market Debt

Securities

Securities Bond Equities Investment Fund Derivatives Structured finance Agency Securities
Markets Bond market Stock market Futures market Foreign exchange market Commodity market Spot market Over-the-counter Market (OTC)
Bonds by coupon Fixed rate bond Floating rate note Zero coupon bond Inflation-indexed bond Commercial paper Perpetual bond
Bonds by issuer Corporate bond Government bond Municipal bond Sovereign bonds
Equities (Stocks) Stock Share IPO Short Selling
Investment Funds Mutual fund Index Fund Exchange-traded fund (ETF) Closed-end fund Segregated fund
Structured Finance Securitization Asset-backed security Collateralized debt obligation Collateralized mortgage obligation Credit-linked note Mortgage-backed security Commercial mortgage-backed security Unsecured bond Agency Securities
Derivatives Options Warrants Futures Forwards Swaps Credit Derivatives Hybrid Securities

Emerging market debt (EMD) is a term used to encompass bonds issued by less developed countries. It does not include borrowing from government, supranational organizations such as the IMF or private sources, though loans that are securitized and issued to the markets would be included. A broader discussion of all types of borrowing by developing countries exists at Developing countries' debt.

Issuance

Emerging Market Debt is primarily issued by sovereign issuers. Corporate debt does exist, but corporations in developing countries generally tend to borrow from banks and other sources, as public debt issuance requires both sufficiently developed markets and large borrowing needs. Sovereign issuance has historically been primarily issued in foreign currencies, either US Dollars or Euros. In recent years, however, the development of pension systems in certain countries has led to increasing issuance in local currencies.

EMD tends to have a lower credit rating than other sovereign debt because of the increased economic and political risks - where most developed countries are either AAA or AA-rated, most EMD issuance is rated below investment grade, though a few countries that have seen significant improvements have been upgraded to BBB or A ratings, and a handful of lower income countries have reached ratings levels equivalent to more profligate developed countries.

History

Emerging Market Debt was historically a small part of bond markets, as primary issuance was limited, data quality was poor, markets were illiquid and crises were a regular occurrence. Since the advent of the Brady Plan in the early 1990s, however, issuance has increased dramatically. The market has continued to be more prone to crises than other debt markets, including the Tequila Crisis in 1994-95, East Asian financial crisis in 1997, Russian financial crisis in 1998 and Argentine economic crisis in 2001-02.

Investing in EMD

Investors tend to use mutual funds to invest in EMD, as many individual securities become more illiquid in secondary markets and bid/offer spreads are too wide to actively trade. The dominant market indexes for US-Dollar denominated investments are the JPMorgan EMBI+ Index, JPMorgan EMBI Global Index and JPMorgan EMBI Global Diversified Index. Other indexes are also provided by Lehman Brothers and other banks.

Issuing countries

Countries needing to borrow generally do not do so publicly unless the borrowing is sufficiently large to justify the costs involved. As a result, most small and poor countries are not actually counted as belonging in the EMD universe. Countries currently listed as EMD issuers include

A handful of countries have stopped issuing debt considered to be 'EMD' due to lesser borrowing needs, improved credit quality, or becoming increasingly developed. These include the Czech Republic, India, Kazakhstan, Poland, South Korea and Thailand, among others.

External links

Emerging Markets: Analysis of finance in developing economies

Bond market

Fixed income | Bond | Debenture

Types of Bonds

By Issuer:

Government bond | Sovereign bond | Agency bond

colspan="2" | Municipal bond | Corporate bond | Emerging market debt

By Payout:

Fixed rate bond | Floating rate note | Zero coupon bond

colspan="2" | Inflation-indexed bond | Commercial paper | Accrual bond

colspan="2" | Auction rate security | High-yield debt | Convertible bond

colspan="2" | Mortgage-backed security | Asset-backed security

Derivatives

Bond option | Credit derivative | Credit default swap

Collateralized debt obligation | Collateralized mortgage obligation

Bond valuation

Pricing:

Par value | Coupon | Clean price | Dirty price

colspan="2" | Accrued interest | Day count convention

Yield analysis:

Nominal yield | Current yield | Yield to maturity

colspan="2" | Yield curve | Bond duration | Bond convexity

Credit analysis:

Credit analysis | Credit risk

Spread analysis:

Yield spread | Credit spread | Option adjusted spread

Interest rate models:

Short rate models | Rendleman-Bartter | Vasicek

colspan="2" | Ho-Lee | Hull-White | Cox-Ingersoll-Ross | Chen

colspan="2" | Heath-Jarrow-Morton | Black-Derman-Toy

security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities, such as bonds and debentures, and equity securities, e.g. common stocks. The company or other entity issuing the security is called the issuer.
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bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity.
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In financial markets, the stock capital of a corporation or a joint-stock company is the capital raised through the issuance, sale and distribution of shares. A person or organization that holds at least a partial share of stock is called a shareholder.
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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Derivatives are financial instruments whose value is derived from the value of something else. They generally take the form of contracts under which the parties agree to payments between them based upon the value of an underlying asset or other data at a particular point in time.
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Structured finance is a broad term used to describe a sector of finance that was created to help transfer risk using complex legal and corporate entities.

Unfortunately structured finance, while widely used, is rarely defined and does not have a consistent definition.
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Agency Securities are specific securities that are issued by either Ginnie Mae, Fannie Mae, or Freddie Mac. These securities are backed by mortgage loans, and due to their creation from these particular corporations that are sponsored by the U.S.
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The bond market, also known as the debt, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. The size of the international bond market is an estimated $45 trillion of which the size of outstanding U.S.
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A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately.
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The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators,
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Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.
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The Spot Market or Cash Market is a commodities or securities market in which goods are sold for cash and delivered immediately. Contracts bought and sold on these markets are immediately effective.
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Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futures exchanges or stock exchanges.
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In finance, a fixed rate bond is a bond with a fixed coupon (interest) rate, as opposed to a floating rate note. A fixed rate bond is a long term debt paper that carries a predetermined interest rate.
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Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a spread. The spread is a rate that remains constant. Almost all FRNs have quarterly coupons, i.e.
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Zero coupon bonds are bonds that pay no periodic interest payments, or so-called "coupons". Zero coupon bonds are purchased at a discount from their value at maturity. The holder of a zero coupon bond is entitled to receive a single payment, usually of a specified sum of money at
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Inflation-indexed bonds (also known as linkers) are bonds whose principal are indexed to inflation, cutting out inflation risk^[1]. The first known inflation-indexed bond was issued by the Massachusetts Bay Company in 1780.
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Commercial paper is a money market security issued by large banks and corporations. It is generally not used to finance long-term investments but rather to purchase inventory or to manage working capital.
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A perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date. Therefore, it may be treated as equity, not as debt. Perpetual bonds pay coupons forever, and the issuer does not have to redeem them.
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A corporate bond is a bond issued by a corporation. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.
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A government bond is a bond issued by a national government denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
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In the United States, a municipal bond (or muni) is a bond issued by a state, city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, redevelopment agencies, school districts, publicly owned airports and seaports,
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A sovereign bond is a bond issued by a national government. Bonds issued by national governments in the country's own currency are also referred as government bonds.
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In financial markets, a share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REIT's. In British English, use of the word shares
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In finance, short selling or "shorting" is a way to profit from the decline in price of a security, such as a stock or a bond. In contrast, investors who "go long" with an investment hope the price will rise.
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mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
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An index fund or index tracker is a collective investment scheme (usually a mutual fund) that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.
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