While US policy-makers placed a possible December rate lift-off back on the agenda last week, the New York-based bank envisages no erosion in the appeal of investing in higher-yielding assets such as developing-nation euro bonds.
The reason: Fed rates will not rise fast enough to diminish the allure of emerging-market debt that offers almost 400 basis points more than US Treasuries.
That is about half a percentage point more than the average premium since the Fed cut rates to near zero seven years ago.
Investors dumped developing-nation sovereign bonds in September amid concerns that a slowdown in China will curb global growth.
Denis O’Brien’s Caribbean telecoms company Digicel was one of the firms to pull plans for an IPO, citing concerns about world markets.
That helped widen the extra yield on those securities to a four-year high, luring investors such as Goldman, which wagered that monetary policy in the US and Europe will be supportive for longer.
The case for yield-chasing will stay popular in the coming months, according to Yacov Arnopolin, a money manager who helps oversee about $36bn (€32.6bn) of emerging-market debt at Goldman Sachs Asset Management.
“The case for looking for yield in emerging markets remains intact,” said Mr Arnopolin. “Spreads continue to look attractive to us, especially in the context of a persistent low-rate environment and lack of high-quality alternatives offering comparable yields.”
Mr Arnopolin remains steadfast in his view even after emerging-market bonds rallied in October, posting the biggest monthly gain relative to Treasuries in more than three years.
It was only a rebound from earlier pessimism which had run too far and does not erode the cushion the bond yields provide over the prevailing low returns in the US, he said.
“The anti-emerging-market sentiment got to extremes in September,” said Mr Arnopolin. “Some of the reduction in risk premium has to do with the wash-out of the overly bearish positioning.”
Emerging-market bonds rallied last month, narrowing the risk premium by 41 basis points, the most since June 2012, according to JPMorgan Chase & Co. indexes. On Tuesday, the premium rose one basis point to 388.
While a US interest-rate increase could temporarily disrupt an emerging-market bond rally, “the ensuing volatility will be short-lived”, said Gregory Saichin, the chief investment officer for emerging-market fixed income at Allianz Global Investors Europe.
Still, US monetary policy is not the only factor that will determine the fate of developing-nation bonds. Given that many emerging-markets are dependent on oil either as net exporters or importers, prices of crude will play a role.