3 ETFs To Play Brazilian Bonds

As talks of a bubble forming in the US bond market continue to prevail, many investors have turned to the Brazilian bond market and for good reason.

According to investment data firm, EPFR Global, international bond fund managers have infiltrated the Brazilian bond markets to the tune of $5.2 billion of assets as of September 22, 2010, more than double that seen in 2009.  Furthermore inflows into Brazilian bonds account for more than 10% of all inflows into emerging market bonds.  Lastly, local Brazilian government

Currently, local Brazilian government bonds are yielding more than 11 percent on one-year bonds and are expected to continue to do so as demand is expected to remain strong, especially from countries with low interest rates, suggests Kenneth Rapoza of Barrons. 

In addition to double digit yields, Brazilian bonds are likely to remain appealing due to the nation’s strong financial position, its investment grade debt and its excess cash reserves which exceed the interest that the Latin American nation owes on its debt to foreign countries.  Lastly, Brazil is expected to witness a stable local economy, growing at a rate of 7% annually in the upcoming years. 

At the end of the day, Brazil is a financially healthy nation, which carries little credit risk, and is expected to witness sustainable GDP growth over the next few years making the nation’s debt appealing to investors. 

Some easy ways to gain access to Brazilian bonds include:

  • Market Vectors Emerging Markets Local Currency Bond ETF (EMLC), which allocates nearly 10% of its assets to Brazilian bonds.
  • iShares JPMorgan USD Emerging Market Bond Fund (EMB), which allocates 8.87% of its assets to Brazilian bonds.
  • PowerShares Emerging Market Sovereign Debt Portfolio (PCY), which allocates nearly 4.51% of its assets to Brazilian bonds.

Although an opportunity appears to exist in Brazilian bonds, it is important to keep in mind the risks that could be detrimental to yields such as unmanageable spikes in inflation and a major decline of foreign investment in Brazilian projects.  To help protect against these risks, the use of an exit strategy which helps in preserving returns is important.  Such a strategy can be found at

Disclosure: No Positions

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