Dollar bonds owned by debt-defaulted countries such as Sri Lanka and Zambia have delivered double-digit returns so far in 2024 mainly due to domestic policy reforms and changes becoming more attractive than bonds from the rich countries.

According to The Financial Times, emerging market sovereign bonds denominated in foreign currencies — mainly the dollar— and holding a triple B ‘junk’ rating or lower have delivered a 4.9% total return for investors this year compared to a loss of 3.3% for an index of the US Treasury bonds. 

These gains have come as the resilience of the global economy surprised investors while higher commodity prices have benefited countries such as oil exporters Nigeria and Angola and copper producer Zambia. 

Meanwhile, the support from lenders such as the International Monetary Fund (IMF) has helped those in debt distress or default such as Sri Lanka and Zambia.

Dollar bonds in Sri Lanka, Ghana and Zambia have all delivered double-digit returns this year as they enter the final phase of the restructuring process. “The most fragile countries in EM are becoming less fragile,” Paul Greer, an emerging markets debt portfolio manager at Fidelity International told The Financial Times, “A lot of that is because of . . . domestic policy reforms and changes.” 

Significant support from the IMF and other official creditors in recent months has also helped reduce the likelihood of more sovereign debt defaults this year, say investors.

The strong performance of some high-yield emerging market countries has helped lift JPMorgan’s broader foreign currency EM sovereign bond index by 1.4%. That compares with a 3% fall for an index of high-grade global bonds.