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Model Insight - Modeling the Market Risk of Emerging Market Hard Currency Bonds - August 2013

In the past ten years, there has been a dramatic increase in the issuance of hard currency bonds by emerging market issuers. This development pre-dates the financial crisis of 2008, but the ensuing low yield environment in developed markets helped propel the trend as bond holders around the world searched for yield.  With yields now rising in developed markets and emerging market economies coming under pressure, emerging market bond portfolios may be facing a new period of uncertainty.  To meet this challenge, Barra has introduced an enhancement to its Emerging Market bond factor model, adding corporate factors and expanded sovereign issuer coverage, as well as other enhancements.  This Model Insight uses the new EM model features to analyze the market risk of emerging market bonds from 2008 to the present.