Investors pour $1.2b into riskier debt as rate rise fears fade

Investors are pouring cash into the world’s largest exchange-traded fund tracking emerging-market debt, as confidence mounts that the US Federal Reserve is nearing the end of its aggressive monetary tightening campaign.

The iShares JPMorgan USD Emerging Markets Bond ETF recorded its strongest weekly inflow last week since January, gaining $US765 million ($1.2 billion) as investors ride the euphoria that has been pumping money back into risk assets. The fund has seen six weeks of continuous inflows, the longest streak since August 2022, according to data compiled by Bloomberg.

Investors are actively looking for opportunities across emerging markets as the prospect of a soft landing in the US and interest rate cuts starting in the first half of next year boost appetites for riskier assets.

“Flows into high-yielding sectors are typical at a stage in which markets price in soft-landing scenarios,” said Carlos Asilis, chief investment officer and founder of advisory firm Glovista Investments. “The question is whether markets are overpricing such a soft-landing scenario or not.”

Slower growth but with a lower inflation outlook “merits” an end to Fed rate rises, and a soft-landing scenario could be “nirvana” for high-yielding sectors, Asilis added.