Several economists and analysts have been excited about emerging market bonds in recent months. Perhaps they’re correct, but from a logical standpoint, choosing to invest in emerging market bonds at the current times makes no sense whatsoever. You would simply be attempting to run against strong headwinds. This is neither fun nor productive.

A Trolley Among Racecars

As we all know, the stock market went absolutely parabolic over the past five years. In early 2009, we were in a deflationary environment. Contrary to popular belief, that was a positive because we were saving, paying off our debts, and giving ourselves an opportunity to grow organically again in the future. Before long, the Federal Reserve implemented its low interest rate policy to restart the economic growth engine. Then the first round of quantitative easing began in the first quarter of 2010. This helped fuel the rally. (For more, see: An Introduction to Emerging Market Bonds .)

If you had invested in, well … almost anything, you would have enjoyed gargantuan returns over the next several years. Despite that being the case, iShares JPMorgan USD Emerging Markets Bond ETF (EMB ) would have made you look like an investor plodding along in a horse and buggy while other investors in Ferraris raced around you. You don’t want to be that guy. Then again, if you were that guy, then what’s done is done. And at least you weren’t shorting the market.

Loading the player.

For a more specific example, since Dec. 14, 2009, the EMB exchange-traded fund has only appreciated 6.34%. It also comes with a 0.60% expense ratio. A 4.23% annual dividend yield is nice, but that still doesn’t make up for the lack of appreciation compared to other investment opportunities. All that said, we need to be forward-looking, so let’s take a look at what’s likely (not guaranteed) to occur in the future. (For more, see: The Better Bet: Emerging Market Debt or Equity? )

King Dollar

iShares JPMorgan USD Emerging Markets Bond essentially tracks the total return of debt in emerging markets. If these markets were still emerging as they had been in the past, then it would make for a quality investment. During these times, there were also no credit worries. Additionally, quantitative easing in the United States helped because it suppressed the U.S. dollar. Things have changed considerably. (For more, see: Investing in Emerging Market Debt .)

It’s widely believed that interest rates will finally increase next year, which will further increase the value of the U.S. dollar. This is bad news for emerging markets, because it will make their debt more difficult to repay. Furthermore, if the global economy is heading toward a deflationary environment (oil might be hinting at this) and there is a debt crisis, then those debts must be paid off. In the United States, this will lead to fewer dollars in the system, which reduces supply and increases its value. Another problem for iShares JPMorgan USD Emerging Markets Bond is exposure to major oil producing nations, including Russia. (For more, see: Invest in Emerging Market Bonds with this ETF .)

The Bottom Line

Some people feel that since this isn’t a crowded trade, it’s a good trade. That probably isn’t investment strategy. Others feel as though emerging market bonds would make a good long-term investment. Perhaps that’s true, but why suffer for several years or underperformance when it’s not necessary? Simple logic tells us to stay away from emerging market bonds. Why? Because if you look at how EMB performed in a raging bull market (including emerging markets), what makes you think it’s going to suddenly perform better when that bull run comes to an end? Please do your own research prior to making any investment decisions. (For more, see: Emerging Market Bond ETFs: Look Under the Hood .)

Dan Moskowitz doesn’t own shares of EMB.