Explain the risks of investing in emerging market bonds and the tools of country risk analysis used to judge such economies

Emerging market debt carries risks beyond credit spread: weaker legal systems and creditor rights, political instability, reliance on commodity exports, capital flight, and currency mismatch from foreign-currency borrowing. Country risk analysis asks whether the economy can sustain its obligations: growth prospects, fiscal balance, debt burden, current account, external debt, and foreign exchange reserves relative to short-term foreign debt. Curriculum rules of thumb include concern when the fiscal deficit exceeds about 4% of GDP, public debt exceeds 70% to 80% of GDP, the current account deficit exceeds about 4% of GDP, or reserves cover less than 100% of short-term debt. The trap is judging a sovereign on ratios alone and ignoring political willingness to pay and the quality of institutions.