Investing.com -- Bank of America said emerging market corporate bonds returned negative 0.9% in July as rising Treasury yields offset stable credit spreads. The 5-year and 10-year Treasury yields increased 15 basis points and 27 basis points respectively, while aggregate emerging market corporate spreads tightened 2 basis points.

Investment grade bonds returned negative 1.1% compared to negative 0.3% for high yield bonds. Within high yield, Asia returned positive 0.1%, Europe, Middle East and Africa returned negative 0.3%, and Latin America returned negative 0.4%.

Emerging market high yield spreads tightened 12 basis points in July, though the bank noted this figure was affected by Braskem exiting the index after defaulting. Excluding Braskem, high yield spreads still tightened 2 basis points, supported by broader tightening in Latin America high yield of 11 basis points. Europe, Middle East and Africa high yield spreads widened 16 basis points due to geopolitical risk.

Bank of America maintained its preference for selective high yield carry over long-duration investment grade bonds, focusing on credits where shorter duration and higher carry are supported by deleveraging, refinancing, asset backing or other factors.

The bank said data from the past three years showed emerging market high yield's spread beta to US Treasury yields averaged negative 0.31, compared with negative 0.22 for emerging market investment grade. Within high yield, Latin America had the most negative spread beta at negative 0.35, versus negative 0.28 for Europe, Middle East and Africa and negative 0.23 for Asia.

At the end of July, the trailing 52-week correlation between emerging market investment grade and 10-year Treasury returns was 0.90, compared to 0.42 between emerging market high yield and 5-year Treasury returns.