The junk bond market in emerging markets is experiencing a strong rally, with a Bloomberg index of high-yielding sovereign dollar debt set to increase by 15% this year, the largest annual gain since 2016.
Global investors are rewarding countries like Argentina, Sri Lanka, and Ghana for their efforts in addressing defaults and implementing economic reforms. This increase in the junk bond market is a temporary relief amidst ongoing concerns about potential future distress. Despite recent increases in US yields, the rally has shown resilience.
Analysts caution that if Donald Trump implements his economic policies, emerging markets could face renewed challenges in the coming years.