The next leg of capital appreciation in dollar bonds issued by Sri Lanka and Pakistan will be triggered by rating upgrades, according to Goldman Sachs Asset Management.

Bloomberg reported that Goldman Sachs Head of Global Fixed Income for Asia Pacific Salman Niaz, said that in the next six to 12 months, rating upgrades will be the first catalyst and market access the next, for capital appreciation.

“There is a limited number of improving credit stories in emerging Asian sovereign bond markets that offer capital appreciation. So when these countries decide they’re ready to come to the market, it is very likely that you will see more demand than supply, which can also lead to existing securities getting repriced,” he added.

“Thematically, we still like frontier Asia sovereigns as they continue to be supported by improving fundamentals. We see more limited upside compared with 12 months ago as valuations have gone up.”

All major rating agencies have upgraded Sri Lanka’s long-term foreign currency debt out of default, as S&P Global upgraded Sri Lanka’s dollar bonds to CCC from SD.

Earlier last month, Central Bank Governor Dr. Nandalal Weerasinghe said that Sri Lanka should reach a ‘B’ level, upgrading its bonds to regain market access to raise more funds through the issuance of new bonds.

According to the International Monetary Fund (IMF) programme, Sri Lanka is expected to raise about $ 1.5 billion from dollar bonds in 2027 to cover the external finance gap.

At the end of last week, Sri Lanka’s 2038 step-up Macro-Linked bond stood at 6.79%, while the 2035 step-up Governance Linked Bond stood at 8.95%.