(MONEY Magazine) – Not too long ago, only investors with an Evel Knievel-like tolerance for risk would have considered emerging markets bonds. After all, as last fall's Asian economic crisis reverberated through developing nations from the Pacific Rim to Latin America to Eastern Europe, emerging markets bond prices plummeted by 15%.

Now, in the wake of the International Monetary Fund's bailouts of Korea and other countries, these bonds have been making a comeback. As a result, analysts such as Vivian Lewis, editor of Global Investing newsletter, consider them excellent values for fixed-income investors who are comfortable with a bit of risk. Emerging markets debt is more volatile than U.S. junk bonds, Lewis notes, but the risk of default is no higher. And emerging markets bonds offer average yields of 10% or so vs. 8.7% for junk, plus a shot at higher capital gains. Since 1995, according to fund rating firm Morningstar, emerging markets bond funds have posted annualized returns of 24.8% on average, easily outdistancing the 14.5% gains of U.S. high-yield bonds. "Everybody knows what the risks are in emerging markets bonds," says Lewis. "But you are getting paid to take them."

To be sure, those risks are considerable. One of the biggest is that a country's currency could suddenly decline vs. the U.S. dollar, as occurred last year in Thailand and Malaysia. Fund managers can somewhat hedge against that possibility by broad geographic diversification and by keeping most of their portfolios in bonds denominated in U.S. dollars. Still, don't even think of investing in the funds that buy these bonds unless you plan to hang in for at least five years--and can stomach double-digit setbacks.

The four funds that follow are run by managers who have successfully navigated emerging markets for five years or longer, although their funds may be of more recent vintage. If you are more interested in income than in capital-gains potential, Morningstar analyst William Whitt suggests sticking to the final selection--a closed-end fund--which is managed to provide a reliable yield.

T. Rowe Price Emerging Markets Bond (recent yield 8.5%; 32.5% annualized return for the three years that ended March 13; 800-638-5660). Impressed with the financial reforms being instituted in Russia, manager Michael Conelius, 34, has stashed the largest portion of his assets (about 20%) in Russian government bonds, which recently sported yields as high as 12%. "The biggest problem in Russia is improving the tax collection system," says Conelius. "And I think the government is clearly moving in that direction." Conelius' next largest stake is in Brazil (15%), followed by Bulgaria (10%), with most of the rest of his holdings in Latin America and Africa.

Phoenix Emerging Markets Bond (10.4% yield; 33.4% annualized return since its September 1995 inception; 4.75% load for A shares; 800-243-4361). This fund has been king of capital gains, largely because manager Peter Lannigan, 37, has been able to move quickly into the debt of troubled but improving countries. By buying Poland's low-rated bonds in late 1995, for example, he registered capital gains of 24% within seven months when Polish debt achieved investment-grade ratings from nationally recognized rating agencies. Lannigan also scoops up oversize gains by buying participations in bank loans before they are transformed into bonds, a strategy he's been using lately in the Ivory Coast and in Russia. His current biggest stakes: Brazil (25% of assets), Russia (25%) and Bulgaria (7%).

Fidelity New Markets Income (9.9% yield; 35.3% three-year annualized return; 800-544-8888). In 1994, this fund got hurt when it made big bets on illiquid bonds of small countries. But the fund's not likely to get caught in that trap again, since John Carlson, 48, now avoids arcane issues, preferring to stick to debt of larger countries whose bonds trade more frequently. Recently, the fund's largest holdings were in Argentina (20% of assets) and Brazil (20%) followed by Russia (15%) and Mexico (15%). The remaining 30% of assets is made up of smaller positions in Latin America, Africa and Eastern Europe.

Templeton Emerging Markets Income (9.5%; 21.2% three-year return; trades on the New York Stock Exchange, symbol TEI). This closed-end fund concentrates mostly on Latin American issues, keeping about 72% of its assets in that region. But with the Templeton organization's long experience in Asia, co-manager Umran Demirors, 42, isn't afraid to venture into emerging Asian countries as well. Recently, for example, the fund had about 10% of its portfolio in Indonesian and Philippine issues. Still, the managers keep a tight rein on volatility by buying issues with fairly short durations, generally three to five years vs. seven to 10 years for most emerging markets portfolios. "Our shareholders want high income," says Demirors. "So that is what we manage for, as opposed to total return."