Are EM bonds entering a rally?

investmentnews.com:

Investors who stuck with bonds from countries that defaulted or are on the brink are betting the double-digit returns they’ve posted over the past month are just the start of a rally.

JPMorgan Asset Management’s Pierre-Yves Bareau, who oversees $50 billion in emerging-market debt, says he’s never seen so much value unlocked from distressed and defaulted government notes this late in a Federal Reserve interest-rate hiking cycle. Similarly, UBS Asset Management’s Shamaila Khan says there are more opportunities now than she has seen in her two decade-long career.

“We are not in a regular cycle,” Bareau said, referring to the Fed’s tightening campaign. “The restructuring talks that we’re seeing in front of our eyes now are a bit more favorable than what the market had been pricing in.”

The gains come as the nations reach milestones that, in some cases, were years in the making. Zambia, which defaulted in 2020, struck an agreement in June with bilateral creditors led by China to restructure $6.3 billion of debt. A week later, Pakistan announced a $3 billion deal with the International Monetary Fund, while Sri Lanka said it would revamp nearly $20 billion of local bills and bonds.

Dollar bonds from those three countries have returned 25% over the past month, compared to 1.3% in total returns for an index of developing-nation government debt. They had handed investors losses of more than 45% from the start of the pandemic through the end of May, according to data compiled by Bloomberg.

That rebound is being closely monitored by emerging-market investors after the pandemic, soaring inflation and the most aggressive US monetary tightening in a generation pushed vulnerable countries into debt distress and default. Challenges have