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Investors traded $4.9 trillion of emerging markets debt in 2018

This image is a close-up of stock trading prices on a screen at the new york stock exchange.
Photo: Bryan R. Smith/AFP/Getty Images

Investors pulled back slightly on emerging markets debt last year, with trading volumes falling just 0.4% to $4.88 trillion, according to a new report from trade association EMTA.

Why it matters: Despite the Fed raising rates 4 times and the U.S. dollar rising — both are seen as very negative for EM bonds — investors bought emerging market debt at roughly the same level as 2017 when the asset class significantly outperformed U.S. debt.

Context: EM debt had a rough 2018, with the JPMorgan EM global bond index delivering -5% returns and a number of major EM currencies falling in value against the dollar, delivering a double whammy to local currency bondholders.

  • EM equities were hard hit, with the MSCI emerging market stock index down 15%.

Yes, but: Trading volumes fell to their lowest since 2015, which was the lowest they had been since 2009. EM debt had picked up significant momentum going into 2016, reaching nearly $5.2 trillion, but has pulled back since.

  • Investors also dramatically increased the volume of insurance trading on emerging market debt, trading 40% more credit default swaps last year than they did in 2017, EMTA's data showed.
  • CDS trade volume rose to $1.8 trillion as worries increased over the health of Turkey and Argentina's economies, as well as elections in countries such as Brazil and Mexico.

Go deeper: Emerging markets are hot again after a rocky 2018