With bond yields in several developed countries dropping to historic low levels, investors are turning to dividend stocks and emerging market debt for yields. German and Swiss government bond yields have dropped below zero this week. Investors are rushing to the safety of government bonds amid concerns over the Brexit issue.
Volatility in stocks is helping bond markets. In the U.S., Treasury yields remain at historic low levels. On Wednesday, the Federal Reserve kept its benchmark interest rates unchanged, which was expected. However, the Fed has also pared back its rate forecasts for 2017 and 2018. This means that the low interest rate environment is going to prevail for a while. Income investors should therefore consider ETFs such as BMO Emerging Market Bond Hedged to CAD Index (TSX: ZEF), which are still offering attractive yields.
ZEF currently offers a yield of 4.29%. Year-to-date, the fund has gained 3.87%, compared to a gain of 5.58% for the S&P/TSX Composite Index.
ZEF has been designed to replicate the performance of the Barclays Capital Emerging Markets Tradable USD Sovereign Bond Index CAD Hedged, net of expenses. The Fund seeks to invest in and hold the constituent securities of the index.
