Emerging market bonds experience mass capital inflows

The search for yield continues with the weekly net capital flow into emerging market bonds recording the highest inflow of all time marking a pivotal moment in the scramble to secure positive returns.

Analyst believe the contagion spreading through advanced economies bond markets, which has seen trillions of dollars in face value bonds turn into negative yields at an alarming rate, continuing due to the expectation on its central banks (some of the most respected in the world) to deliver further stimulus after a number of rounds of quantitative easing have left policymakers puzzled and frantic for a solution.      

Everyone wants a piece of the EM bond pie https://t.co/2KOywQ5MYk pic.twitter.com/iImJt8M0qy

— Bloomberg Markets (@markets) July 25, 2016

Reading through the article posted on Bloomberg, the reporters stated:

"With real sovereign yields in emerging markets high, relative to a flattening U.S. yield curve, the data suggests investors are ignoring political risks that have been exposed by events like last week's failed coup in Turkey, even if they're doing so through gritted teeth"  

This raises an important question when referring to the rational investor who is said to consider all risks when choosing the optimum choice of investment that fits his/her risk profile. If investors are deemed to push aside political risk in exchange for return then there's a case of emotional turmoil spilling over into financial markets, lessening the strength of those who propose rational decision making occurring in the normal course of trade.  

All risks aren't being considered directly skewing the picture with market participants urgency to generate income in a market growing excessively out of control. The true reflection of the condition of financial markets can't be taken from the valuation the market places on it but rather from the hesitancy of investors to shake themselves out of "safe haven" assets into riskier ones.