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.
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