Default risk in EMs as low as it has ever been

Mainstream investors can remember when many of the largest countries in the emerging world experienced bouts of volatility, elevated borrowing costs, currency devaluations, high political risk and episodes of default.

Debt levels were generally viewed to be above sustainable levels, clouded by high fiscal deficits and low growth prospects. Does this sound familiar today? Well it does when one assesses the credit quality in developed countries. And yet investors are hardly getting compensated for such risks when investing in developed country government bonds, unless one can justify negative real rates. In contrast, emerging market debt levels have been on a declining path over the past decade, and are generally expected to decline further in the coming years, according to International Monetary Fun...