Portfolio Manager Perspectives

Jeff Benjamin

Payden & Rygel's bond chief, Kristin Ceva: Emerging-markets debt still rife with opportunities

Oct 15, 2009 @ 10:48 am

By Jeff Benjamin

With the stock market rallying for nearly eight months, it might be easy to overlook the opportunities in the credit markets, according to Kristin Ceva, head of global fixed-income investing at Payden & Rygel.

“From a fixed-income point of view, we're in a sweet spot right now for credit,” said Ms. Ceva, who manages $4.5 billion in various bond portfolios.

Unlike some market watchers and analysts, she is not fretting over the threat of inflation and the rising interest rates that would follow.

“Right now, inflation is under control, and the Fed is not likely to raise rates until June at the earliest,” Ms. Ceva said. “We've been in a low-rate environment for some time for sovereign bonds, and that's a favorable backdrop for the credit markets.”

Ms. Ceva is particularly focused on emerging-markets government bonds, where “the spreads are now similar to where they were in 2004, but the credit quality is higher than in 2004.”

With a lot of investment-grade corporate bonds issued by U.S. companies now yielding below 5%, Ms. Ceva said investors would be remiss to ignore yields in the 7.5% range of some emerging-markets government bonds.

While the emerging-markets government debt is not investment-grade, Ms. Ceva pointed out that it shouldn't be considered “junk bond status” either.

“Over the long term, the emerging-market-bond markets have beaten the emerging-market-equity markets in terms of total return and certainly in terms of volatility,” she said. “If you've already added investment-grade corporates to your portfolio, it's not too late to look at emerging-market sovereign debt, and right now, we also like high-yield debt, but that's not as high-quality, and it will be more volatile.”

In certain markets — including Brazil, Indonesia, Ghana and Egypt — Ms. Ceva has been buying the sovereign debt in local currencies to take advantage of the added alpha that comes with the local currency rallies versus the U.S. dollar.

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