Riyadh: Amer Bisat says emerging-market bonds are in a sweet spot, but there’s a niggling question: when will the good times end?

The frenzied rush that helped ease the average rate on bonds across developing markets to the lowest level since 2013 has been fuelled by near-zero interest rates and bond buying programmes in developed nations. The Federal Reserve is now preparing to shrink its $4.5 trillion balance sheet and the European Central Bank will slow debt purchases.

“This is obviously what keeps me awake quite a bit,” Bisat, a New York-based emerging markets money manager at BlackRock Inc, said in an interview in Bahrain. “The question that we all ask ourselves all the time is once that excessive accommodation by global central bankers reverses, how much of a challenge is it to global fixed income?”

A reversal in sentiment toward emerging-market bonds could be painful. Credit risk for the debt fell to a record this month, according to the Markit CDX Emerging Markets Index, and the extra yield investors demand to hold developing bonds is the lowest in three years.

“I’ve convinced myself that it’s not necessarily fatal,” said Bisat, whose BlackRock Strategic Global Bond Fund beat 72 per cent of peers this year. That’s partly because he thinks that central bankers are going to be gradual in reversing their policy of “excessive accommodation,” and partly because everyone knows higher rates are coming. “The notion that central bankers want to tighten very quickly is very clear to me.”

‘Good spot’

Emerging markets are “in a good spot,” he said. “If you look at history, there are many more episodes where higher core rates coincided with good fixed income investments than there are cases in which it hasn’t,” he said, adding that the global economy is fundamentally much healthier than before.

He also sees value in the Middle East, including Egypt, which is implementing an economic reform program backed by the International Monetary Fund. The country is expected to approve a plan to raise 1.5 billion euros ($1.8 billion) from the sale of bonds before the end of November, Finance Minister Amr Al Garhy said on Saturday.

“Egypt is a place that has gone through a wrenching adjustment as part of an IMF programme and offers good fundamental value for the yields that you’re getting,” Bisat said, adding that he’s keen on both international and local currency bonds there.

“Local currency in particular is a very interesting opportunity at this stage,” he said. “It’s a fixed exchange rate, effectively very cheap level, with very high yields and a commitment to reform.”