AEMB ETF

The U.S. Dollar Index (DXY) has been retreating as of late on the notion that interest rate cuts will happen in 2024, paving the way for an emerging markets bond rally in the new year.

The recent pause in interest rate hikes by the Federal Reserve could finally signal an end to monetary policy tightening. But fixed income investors can keep on reaching for high yield opportunities with a pair of active ETFs from American Century.

Given the current geopolitical risks swirling around emerging markets (EM), investors may want to avoid the EM assets altogether. But if yield and risk are mitigated with one exchange-traded fund (ETF), they may want to reconsider.

The capital markets expect the U.S. Federal Reserve to eventually pivot from its tight monetary policy options. Therefore, fixed income investors should take advantage of yield while it's available.

Central banks in emerging market (EM) countries are already cutting rates, supporting the case for investor allocation into the emerging markets bonds space. For an easier alternative, exchange traded funds (ETFs) could provide an ideal solution for broad exposure.

The emerging market (EM) bonds space could be looking more attractive as central banks may be loosening monetary policy, but inclement weather could potentially challenge that upside. A combination of the COVID-19 pandemic, inflation, and rising interest rates over the past few years have kept investors from seeking opportunities in EM assets.

Confidence in emerging markets (EM) debt is returning as more fixed income investors are seeking higher yield options as the U.S. Federal Reserve decelerates its pace of rate hikes heading into the second half of 2023. It's a change of pace from a bearish 2022 where investors sought safer debt in developed markets.

While the expectation in the capital markets is that inflation will eventually subside and interest rates will fall, fixed income investors may still want more yield. One place to look is emerging market (EM) bonds, or more specifically, the American Century Emerging Markets Bond ETF (AEMB).