2016 is turning out to be a banner year for emerging market bonds. For government debt denominated in dollars, 25 countries’ bonds have a total return greater than emerging market equities, and 50 countries’ bonds beat the total returns of the S&P 500 index, according to iBoxx data.
As the chart shows, the combination of capital gains and high-yielding coupons has delivered eye-popping results. In the first nine months of the year, Venezuelan debt returned 51%, Ecuador 36% and Zambia 31%. What’s striking is how many so-called frontier market issuers are at the top of the pack, along with evergreen emerging market stalwarts like Brazil and South Africa.