AKIPRESS.COM - Investors who piled into some of the world’s riskiest bonds to escape near-zero interest rates got a reality check on Wednesday when Mongolia sent its debt plunging by sounding the alarm on its economic crisis.

The government’s $1 billion of notes due in six years tumbled the most on record after the finance minister went on television to say his critical goal was to avoid default as growth slows and the debt burden soars. Barclays Plc removed its overweight recommendation on the nation’s bonds, which have offered some of the highest returns in a rally fueled by accommodative policies in the developed world, Bloomberg reported.

After cash poured into debt funds tracking emerging nations at the fastest pace on record last month, the shock to Mongolia’s bond market highlights the dangers of plowing into junk-rated credits. Money managers have turned to more exotic issuers like Mongolia to take advantage of yields more than 400 basis points above the average rate for sovereigns in developing countries.

“Central bank policy has given investors a license to move down the risk spectrum,” Gregory Saichin, who helps manage $2.4 billion, including Mongolian bonds, as chief investment officer for developing-world fixed-income at Allianz Global Investors. “The risks are there. People shouldn’t come into a story like this and say they didn’t know about it.”

Finance Minister Choijilsuren Battogtokh spooked investors with forecasts that Mongolia’s ratio of government debt to gross domestic product will reach 78 percent this year, compared with a budget target of 55 percent. Yields on bonds maturing in December 2022, rated five steps below investment grade, surged 129 basis points to 8.42 percent on Wednesday, the highest since July 1.