Emerging market bonds

Emerging market bonds have a long history in the international bond markets, going back to the early nineteenth century. Beginning in 1993, contemporary U.S investors have had access to the emerging market bond sector through the medium of mutual funds. Historically, most emerging market debt was in the form of external sovereign debt, denominated in an external currency (dollar, pound, euro). Today a majority (3/4) of emerging market debt is issued in local currency. Thus investors have access to funds holding bonds in U.S dollars; funds holding bonds in local currencies; and funds that hold both. Emerging market bond mutual funds are actively managed. Recently the ETF marketplace has offered investors indexed portfolios of emerging market bonds.

Arguments against holding emerging market bond funds
Larry Swedroe et al., in their book, The Only Guide You'll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and Investments argue against including emerging market bonds in investment portfolios. The authors cite the higher default risk and extreme volatility associated with emerging market bonds as negative features of this asset. They make the following clarifying arguments about the negative features:
 * They are illiquid.
 * There is the potential for large losses. They exhibit negative skewness and high kurtosis.
 * While having low correlation to other asset classes, the correlation of risk to equities tends to turn high at the wrong time: when equities are in distress and investors look to their bond portfolios to provide stability.
 * Returns are earned in a tax inefficient manner.
 * Implementation costs are high. Mutual funds are needed and they are expensive.

The authors advise seeking emerging market exposure by investing in emerging market stocks; and state that emerging market bonds should be considered an allocation to the equity asset class.