Emerging market bond spreads tightened to record low levels in 2005, as a result of the search for yield in face of ample global liquidity and improving fundamentals in emerging market countries. According to J.P. Morgan, most of the EMBI Global's 8.96% total return in 2005 was derived from spread tightening, which totaled 110 basis points in 2005. The EMBI+ spreads tightened 111 basis points and its Latin component tightened 137 basis points in 2005. Emerging and Latin American markets were also supported by active debt management, as countries took advantage of the favorable external environment to pre-finance for 2006. Sovereigns in Latin America, which will face a heavy electoral cycle in 2006, are estimated to have already met more than 90% of their 2006 external debt financing needs. Pre-financing and debt management has led to improved debt structures and increased resilience to external shocks in emerging markets. According to market analysts, however, some vulnerability remains in Latin American markets. The region remains vulnerable to fluctuations in commodity markets, because despite higher export prices, export volume growth has fallen behind the world's performance, implying a lower export share in global markets. Latin America's investment rate remains relatively low and continues to impose limits on the region's long-term growth. Finally, the 2006 electoral cycle will be a key development to watch, as it might be a source of uncertainty and increased volatility.