The big bond manager said its PIMCO Global Advantage Government and European Advantage Government bond indexes will be weighted by the size of national economies, rather than the amount of debt they have issued.

That will give fast-growing but less-indebted nations such as Brazil a larger weight, at a time when Wall Street is focusing its expansion efforts overseas. Emerging market economies have been playing along, issuing bonds at a record clip.

“The explosion of public debt levels in industrialized countries is reshaping global bond markets,” said Pimco’s Ramin Toloui. “Improved approaches to indexing can help investors avoid the bias of traditional indexes toward high-debt issuers and embed more favorable performance characteristics in their fixed income benchmark.”

Whether the surge of funds into emerging debt markets is good is open to debate, however. Skeptics see the start of an unsustainable boom that will end in bust — ultimately benefiting the likes of Goldman Sachs and Pimco at the expense of everyone else. 

Pimco, naturally, doesn’t see it this way. Leaving aside the issue of whether a surge of capital into poorer countries will ultimately be productively invested, the firm suggests its approach will dampen some of the boom-bust dynamics seen in traditional indexes.

“GDP weighting avoids the problem of market capitalization weighting that increases the weight of securities as they go up in price,” the firm says. “In fact, it has the potential to benefit from counter-cyclical rebalancing, as bond prices tend to move inversely to GDP growth over the business cycle.”