Emerging market debt has evolved over the past few decades from a source of political and economic vulnerability to a potential positive driver of portfolio returns. The addition of new sovereign issuers (denominated in U.S. dollar and euro) has broadened the opportunity set for global investors, and corporate issuance has meaningfully contributed to its growth.
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Canadian companies continue to benefit from a strong earnings growth backdrop, especially in domestic facing sectors of the economy. Demand for new bond issuance remains exceptionally strong, highlighted by the recent all-time record number of buyers1 for a 10-year bond issued by Telus Corporation. In a world of a growing stock of negative-yielding debt, demand for high-quality, I believe positive-yielding bonds should continue to be well supported.
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The economic implications from an inverted yield curve may be overstated, in our view. Historically, when short-term interest rates, anchored by central bank policies, yield more than longer duration maturities the bond market is signaling that monetary policy has become restrictive. Taking on more interest rate risk in your portfolio for less yield to maturity is an unattractive option for investors.
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