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Emerging Market Bond Fund?

Discussion in 'Managed Funds & Index Funds' started by Norak Bastiat, 13th Jan, 2009.

  1. Norak Bastiat

    Norak Bastiat Well-Known Member

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    Most bond funds I see offered in Australia invest in Australia, America, Europe, and Japan. I am worried that there may be a bond bubble is many developed countries, so I want to diversify into emerging markets.

    Is there any emerging market bond fund offered in Australia at all?
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Norak,

    Why do you think that there is a bond bubble?

    Most Bond funds you see offered in Australia offer local and International which usually invest in developed countries as opposed to emerging markets. Hence why there are not many emerging markets bond funds.

    AMP0262AU and SCH0125AU are the ones that I could find from a large fund managers. You can check the AMP and Schroders websites for more information.

    Cheers,

    Dan

    PS This is general information, before making an investment decision speak to you FPA registered Financial Planner.
     
  3. Norak Bastiat

    Norak Bastiat Well-Known Member

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    I don't know for sure whether bonds will crash. Do a Google search for "bond bubble" to read the articles.

    At the moment there is a flight to quality and investors are seeking Treasury bonds for security. This is pushing up the price of bonds, sending yields down. At this point prices are so high that yields are negative. You may as well hold gold since gold has zero yields.

    Couple that with the fear that the American government is in massive debt right now and if the economy does not pick up, how will the government earn enough tax revenue to pay back the interest (or the coupon)?
     
  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi Norak,

    Yes there is a flight to quality...Interest rates have dropped which have sent the price of bonds up. Eg, 8% yield on a face value of $100 means the price would (simplistically) be $92. Now with interest rates dropping, a 4% yield on a face value of $100 means the price is $96.

    You can see this if you look at recent bond fund returns as there is a very strong capital appreciation as interest rates have dropped quite quickly.

    Realistically if you strip out the capital appreciation, you can expect an income return of around 5% to 6% from a bond fund.

    My concern at the moment is the actual opposite, eventually, rates will increase (yes, I know not 2009 and probably not 2010) but that will mean that as yields go up the capital price goes down, hence making a capital loss.

    If your worried about the US, why don't you invest in Australia?

    Cheers,

    Dan

    PS This is general information, before making an investment decision speak to your FPA registered Financial Planner.
     
  5. Norak Bastiat

    Norak Bastiat Well-Known Member

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    Location:
    Melbourne
    My bond fund invests in Australia, the US, Europe, and Japan.

    Emerging market bonds are riskier mainly because of political systems, but maybe some diversification would help.
     
  6. try anything once

    try anything once Well-Known Member

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    I'm just curious, perhaps a bit ignorant but why would anyone invest in bonds at yields of 5-6% on a bond fund when a savings account with an Aust bank can give you about the same return with government guarantee?

    :confused:
     
  7. Norak Bastiat

    Norak Bastiat Well-Known Member

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    Which Aussie savings account gives 5-6 per cent? Certainly I would rather put money in an Australian government backed savings account that gave that much.