(Bloomberg) -- Developing-nation bonds may be losing their luster.
After an 18-month bull run in emerging markets produced more than twice the return of sovereign notes from developed countries, one measure of valuation shows there isn't much juice left. Yield spreads are approaching their average of the past seven years, a bearish signal to traders who buy when they're higher in hopes of a reversal.
Investors are scouting for signs of a crack in the tranquility that has dominated global markets since late last year in an effort to get ahead of any selloff that will bring the whole party crashing down. Steve Hooker, who helps oversee $12 billion of assets as an emerging-market money manager at Newfleet Asset Management in Hartford, said the faltering of the so-called mean-revision trade encouraged him to pull back on what had been an overweight position in developing-nation debt.
“I take notice when every investor seems to love emerging markets and no one seems to be skeptical,” he said. “With spreads having tightened, key elections looming in 2018 and developed market central banks stepping away from accommodative policy, I'm turning a bit more cautious.”
The MSCI Emerging Markets Currency Index fell 0.3 percent at 11:22 a.m. Monday in New York.
--With assistance from Carlos Torres
To contact the reporter on this story: Ben Bartenstein in Lima at bbartenstei3@bloomberg.net.
To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
