Emerging Markets Attract Investors to Local Currency Bonds

Summary:
Investors are increasingly attracted to local currency bonds in emerging markets like Kenya, Pakistan, Egypt, Nigeria, and Turkey, driven by economic turnarounds and high interest rates. Previously shunned due to currency crises, these bonds are now appealing due to interest rate hikes and currency market liberalizations aimed at economic stabilization. Frontier markets offer double-digit yields, making them attractive compared to more mature markets. Notably, Turkey’s lira bonds have seen a surge in foreign investments, while Egypt’s debt has benefited from substantial foreign inflows and economic reforms. Despite the potential risks associated with local currency debt, including volatility and capital controls, investors see value in these markets, especially with the prospect of US interest rates staying high. Analysts suggest that while positioning in these bonds has increased, it is not excessive, and investors are cautiously optimistic about the returns.