(Bloomberg) -- Emerging-market junk bonds have handed investors a return of 11% so far in 2024, marking the best year-to-date performance since 2016 and a sign that risk appetite continues to run high in global markets.
The move in the Bloomberg index, which tracks high-yield dollar-denominated government and corporate bonds from developing countries, is exceptional compared with historical performance and underscores a sense of confidence among investors. If the gains hold for the rest of the year, it will be the first time that the index has posted back-to-back, double-digit annual gains since 2010.
“The overriding driver of the rally in emerging market high-yield bonds is a positive global market risk sentiment,” said Daniel Wood, a fund manager at William Blair International in London. “Fixed-income assets have the tail wind of falling yields ahead of the Fed cutting cycle, while expectations remain for a soft landing in the US economy.”
He also highlighted that many countries which were in default have reached a repayment agreement with bondholders. For example, debt restructuring talks in Zambia, Ukraine and Suriname have been completed this year, and there’s been progress in Ghana.
Among frontier and emerging markets, there are only seven nations with sovereign dollar bonds trading at distressed levels this week, compared with 15 a year ago.
Wood also pointed out that the “sentimental impact” of US monetary easing hasn’t get been reflected in investment flows. Global emerging-market bond funds registered $429 million of outflows in the week ending Sept. 11, a seventh week of losses, for $11.6 billion of negative flows in 2024, Bank of America Corp. said, citing EPFR Global Data.
Fed cuts could allow EM central banks to reduce interest rates, which would support economic growth, said Arnaud Boué, a senior fixed-income portfolio manager at Bank Julius Baer in Zurich.
“I expect the gains to continue as these positive developments will lead to inflows in the asset class,” he said.
(Updates flows data in the sixth paragraph)
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