In just the first two weeks of 2012, governments of undeveloped economies from Asia to Africa sold more than $30.6 billion in dollar-denominated bonds according to Bloomberg News.
That's up from roughly $19.9 billion in the same period last year and the most since 1999, when Bloomberg began collecting data.
Typically, investors shun emerging market bonds during times of uncertainty in favor of "safer" assets like gold and U.S. Treasuries.
But that has started to change.
The Big Move Into Emerging Market DebtIn fact, investor demand is overwhelming supplies as orders have outstripped the amount of bonds being sold.
During a recent auction, the Philippines received $12.5 billion of orders for $1.5 billion of 25-year bonds, pushing the yield down to a record-low 5%. Indonesia sold 30-year bonds at a record-low yield of 5.375% and Colombia sold $1.5 billion of 29-year bonds at 4.964%.
Analysts say the debt crisis in Europe, along with record low yields on U.S Treasuries, has investors on the hunt.
They are now buying the debt of undeveloped nations like Indonesia, Mexico and Brazil, even though credit-rating firms rank them as more risky than their European counterparts
"What we're seeing is a re-evaluation of sovereign-credit risk, increasingly being driven more by fundamentals than by classifications," Eric Stein, a portfolio manager at Eaton Vance Corp. (NYSE: EV) told The Wall Street Journal.
According to the J.P. Morgan Emerging Markets Bond Index, investment-grade sovereign emerging-market bonds are yielding an average of 4.7%.
By contrast, Italian 30-year debt yields 7%, while Spanish 30-year debt yields 6.1%.
One reason emerging market bonds are attracting interest is...