Dissatisfaction with low interest rates and sluggish growth in the developed world is luring bond investors to emerging markets. In the first ten months of this year, the 929 emerging-markets bond funds tracked by Cambridge, Massachusetts–based EPFR Global pulled in $49.5 billion in new assets. That’s more than five times the $9.5 billion they received in 2009 and 52 percent of total emerging-markets bond fund assets.

Investors have been well rewarded. Since the rally began in March 2009, local currency bonds in Indonesia and Brazil jumped 128 percent and 72 percent, respectively, through October 31, according to JPMorgan Chase & Co. Meanwhile, Argentina’s dollar-denominated sovereign bonds soared 224 percent. In the first ten months of 2010, the more-diversified 110 mutual funds in Morningstar’s emerging-markets bond universe climbed 15 percent, on average. ....

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