Trump win boosts interest in Pakistan junk-rated dollar debt

November 12, 2024 (MLN): Junk-rated dollar debt from developing nations like Pakistan is attracting fresh bets from money managers at UBS Asset Management, Lazard Asset Management Ltd. and PGIM Fixed Income in the wake of Donald Trump’s election.

The thinking is that improved fundamentals in some emerging nations — growing foreign reserves, funding agreements and structural economic reforms — will help keep these credits insulated from potential selloffs in global rates, Bloomberg reported.

They also offer some protection from currency volatility stoked by concerns about Trump’s tariff stance.

Pakistan 10Y Bond Maturing in 2031

Portfolio managers have been riding a rally in high-yield notes for most of 2024. EM hard-currency junk bonds have handed investors a 14.5% gain year to date, topping a 3.2% return for investment-grade debt, data compiled by Bloomberg show.

Debt from Argentina, Sri Lanka, and Pakistan, which has returned at least 23% this year, is poised for more gains, according to Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS Asset Management, which oversees $1.8 trillion.

“Fundamentals are improving and countries emerging out of default will continue to perform,” Khan said. “We may not have another 60%, 70% gain, but you can still see attractive double-digit returns. If you see weakness in the space, it’s a fantastic opportunity.”

The more niche nature of these credits — not all investors can dip into, let alone load up on, junk-rated debt from emerging nations due to liquidity or rating concerns — comes in handy at a shaky time for risk assets.

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