Emerging Market Infrastructure Project Bonds: Their Risks and Returns

Abstract

This article analyzes returns from portfolios of emerging market infrastructure project bonds and finds that infrastructure bonds offer low volatility but also low returns. Such an analysis has been difficult because an infrastructure bond index does not exist and issuers do not classify bonds as infrastructure bonds. Infrastructure bonds reflect infrastructure’s economic characteristics and show stable returns and low correlation with equities and equity-based infrastructure indexes, thereby providing valuable diversification opportunities. However, unlike syndicated lending, infrastructure bonds have limited capacity to mitigate creeping expropriation, one of the chief risks that affect emerging market infrastructure investments.