Central and eastern European sovereign bonds have become the
darlings of emerging-market investors in the past few years.
Investors found the 13 official candidates for EU entry
particularly appealing since they offered the tempting option of
reasonable yields combined with the prospect of credit rating
upgrades and capital gains as these countries moved closer and
closer to EU accession.
Investors made huge gains on convergence trades in the run-up to
the European single currency in the mid-1990s, buying high-yielding
bonds of countries such as Italy on the basis that political
momentum would push it into the single currency. Now investors want
to enjoy a second version of the great convergence-trade party.
After all, nowhere else in the emerging world could you guarantee
that every credit in the region would be on the same conservative
economic and political path in order to meet EU accession criteria.
Or that 10 of these countries would...
