Emerging Markets Bond Index (EMBI)
Candlefocus EditorThe first EMBI index was created by JP Morgan in 1994, in an effort to facilitate the increasing demand for emerging market debt. Since its inception the index has grown considerably, covering nearly 55 countries today, compared to just 10 countries when it was first launched. It has also grown to include regional corporate bonds, creating a wider opportunity for investors.
The EMBI index includes government bonds from countries like Brazil, Mexico and India. It also includes corporate bonds issued by private companies in countries such as Russia, Saudi Arabia and China. For a bond to be included in the index, it must meet certain criteria such as having a minimum outstanding amount of US$500 million, having a minimum track record of one year, and having at least two in-country quotes.
The EMBI index has become the go-to benchmark for those investing in emerging market bonds. It provides an accurate method of price assessment and a reliable barometer of emerging market risk. The index facilitates pricing and hedging activities and helps investors understand the performance of their portfolios.
However, some investors view the index with caution. Since it is composed of government bonds, currency fluctuations can have a large impact on investor returns. In addition, the spread of the bonds in the index can be wide, meaning returns are affected by the performance of individual countries or bonds, as well as the wider market.
Overall, the EMBI index provides investors with valuable benchmarking capabilities and has grown to become an important tool for professionals in the emerging markets debt sector. It has allowed investors to gain exposure to these high-yielding investments in a more efficient and cost-effective manner. As the demand for emerging market debt continues to grow, the EMBI index will no doubt remain an essential part of the investment landscape.