how the embi is used
emerging markets bond indexes are used as benchmarks for bond performance in emerging markets the most popular emerging markets bond indexes are the jp morgan embi index jp morgan embi global index and jp morgan embi global diversified index the embi index measures brady bonds which are dollar denominated bonds issued primarily by latin american countries the embi also includes dollar denominated loans and eurobonds and expands on j p morgan s original emerging markets bond index embi which was introduced in 1992 when it covered only brady bonds countries in the embi index are selected according to a sovereign credit rating level the index is weighted on the basis of the market capitalization of government bonds but it is the sub index with the greatest liquidity requirements so some markets are excluded to qualify for index membership the debt must be more than one year to maturity have at least a 500 million outstanding face value and meet stringent trading guidelines to ensure that pricing inefficiencies don t affect the index embi the jp morgan embi global index is an extended version of the embi index the embi global has the same criteria as the embi however it does not select countries based on their sovereign credit rating level instead the index includes a number of higher rated countries through a formula which combines the world bank defined per capita income brackets and each country s debt restructuring history hence it is somewhat more comprehensive broader and thus more representative than the embi index the embi global diversified limits the weights of countries with larger debt stocks by only including a specified portion of these countries eligible current face amounts of debt outstanding the large markets are weighted lower and the small markets are weighted higher than in the embi global index the j p morgan indexes are a popular benchmark for money managers that deal in emerging market debt so that investors may see the index used as a comparison for their mutual funds or exchange traded funds because of their higher interest rates emerging market bonds can significantly outperform u s treasury bonds other emerging bond indexes include barclays usd emerging market govric cap index db emerging market usd liquid balanced index and bloomberg usd emerging market sovereign bond index ishares jpmorgan usd emerging markets bond etflaunched with the help of ishares in december 2007 the ishares jpmorgan usd emerging markets bond etf emb tracks the jpmorgan embi global core index embi global core is a very broad u s dollar denominated emerging markets debt benchmark it is also highly diverse no single debt instrument comprises more than 2 of total holdings and most fall short of 1 nearly three quarters of the embi global core is emerging government debt with most of the rest focused on high yielding corporate bonds the expense ratio is in line with what you d expect from an ishares etf at 0 40 the ishares jpmorgan usd emerging markets bond etf is best suited for investors are looking for a diversified path to high yielding fixed income the fund has holdings in 50 countries including in allocation in russia mexico poland hungary south africa and the philippines 