Why have bonds issued by distressed nations been among the best performers in debt markets this year

Bonds issued by some of the world's poorest economies with rock-bottom credit ratings of triple-C and below have seen an average total return of 27% since the beginning of the year, making them among the best performers in debt markets. This rally in sovereign bonds from distressed nations has been driven by several factors.

Firstly, signs that global interest rates are close to peaking have boosted investor sentiment towards higher-yielding assets, including emerging market debt.

Secondly, progress in restructuring talks in countries that were pushed into default by the shocks of the past three years has increased investors' expectations of potential debt recovery.

Despite the overall rebound in emerging market debt, caution remains in the distressed sector. Some investors, like Paul Greer from Fidelity, have become more cautious given the recent rally, but still maintain overweight positions in some defaulting countries like Ukraine.

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