He's also overweight in Russia and the Ukraine. Otherwise he likes Eastern Europe less, since it is not exporting commodities and it might have more exposure to Western Europe's debt woes (the Greek debt crisis sapped the vitality of emerging market bonds a bit last year). Meanwhile, Turkey is a large part of the JP Morgan Emerging Market Bond Index Global Diversified, which is Booth's benchmark, but the country has a current account problem, he says, which is going to be exacerbated by the rising oil prices since it's a large energy importer. For that reason, it's less favorable to him. "It would likely underperform if oil prices were elevated," he says.

Panait at Payden & Rygel says her fund is overweight in Latin America and Asia, and she underweights Eastern Europe, the Middle East and Africa. "Again, that's on the back of more positive fundamentals in Latin America and Asia in terms of their debt to GDP and their fiscal trends," she says. In Eastern Europe, the fund shuns countries like Hungary and Poland and overweights Russia, for its higher oil prices, and Ukraine, whose economy has stabilized and overcome political woes.

"Also, we think that relative to other countries that are rated triple-B, Russia continues to trade cheaply, so we actually have a combination there of the U.S. dollar-denominated sovereign as well as some of the quasi-sovereign names, so these are corporates that are owned by the government such as Gazprom in Russia.

"In Asia," she continues, "our primary theme is our currency trade being long in some of the Asian countries. So we're long the Philippine peso, we're long the Malaysian ringgit and the Singapore dollar."

Loomis Sayles is another company trying to help investors deal with inflation risks and a market with depressed yields. At the end of 2010, the company launched a couple of bond funds, the Multi-Asset Real Return Fund and the Absolute Strategies Fund. Though they have slightly different strategies, both have a go-anywhere mandate that uses derivatives and short plays. Both can go 100% long or short if need be. According to vice president and portfolio manager Kevin Kearns, the idea is to isolate the different sorts of risk from every bond-its interest rate risk, currency risk, credit risk and swap risk-and then hedge out some of the risks if need be by shorting.

For example, take a corporate bond like Russian mobile phone provider Vimpelcom. In this case, the company likes Vimpelcom's recent issuance of bonds maturing in 2021, which have a 7.748% coupon. On top of that Kearns must consider Russian sovereign risk. The fund doesn't want that Russian sovereign risk, so Loomis Sayles buys the U.S. dollar denominated bond and then hedges against U.S. interest rates.

"This is going to be dominated by U.S. interest rates because it's based on U.S. dollars etc.," he says. "From that perspective, we hedged out U.S. interest rates because we didn't want to take that risk. So what we're really looking for in this case is the credit spread to contract. If it contracts, then we've made a very good investment while not taking U.S. interest rate risk and not taking Russian risk."

Another example is Brazil, which, even though it has a strong economy with strong companies, has a more volatile currency, he says. "If you have a very volatile country, even though you might have a high coupon, your month-to-month return can be dominated by that currency," says Kearns. "So you have to ask as you construct the portfolio 'Do I want that additional volatility in the portfolio? What risk in that particular bond do I view as attractive?'"

No Thanks
Not everyone is convinced, however, that right now emerging market bonds are safe or good deals. Thornburg, for one, is staying away from the sector in its strategic income fund. The fund has a flexible mandate to go anywhere, but currently its managers don't like the emerging market debt picture at all.

"I would put us extremely negative on emerging market debt," says Strickland. "So we hold almost none within the fund-only a few relatively small 1%-2% positions in Brazilian debt that we put on a couple of years ago."