Emerging Markets Bonds

Looking ahead, we expect continued inflows, rising demand, and reduced supply to support EM hard-currency bonds. For EM local-currency bonds, we believe the current macroeconomic environment remains favorable, despite our conviction in a USD bear market being lower than it was a few months ago.

As we approach 2026, Fixed Income markets are shaped by weaker fundamentals, though lower uncertainty may reduce the likelihood of a catastrophic decline. That said, volatility will remain a defining feature. We believe the year ahead holds great potential for active managers who remain steady at the wheel: cautious but nimble.

As investors face tariffs, muted growth, and geopolitical risk, the Fixed Income team explains how emerging-market investment-grade bonds can provide yield and global diversification.

With strong fundamentals, broad region and sector diversification, and a track record of weathering financial crises, emerging-market investment-grade (EM IG) bonds have evolved into a high-quality asset class, in our view. Yet, despite a robust risk-return profile, EM IG remains significantly underrepresented in actively managed, dedicated strategies.

Accelerating rating upgrades and renewed inflows into the asset class are likely to support EM spreads relative to their historical levels and other credit markets. Absent a major global shock, we expect EM bonds to remain resilient, offering stable carry even if capital appreciation becomes more difficult to capture.

The US dollar’s reign is faltering, and we believe a prolonged dollar bear market is underway – a scenario that has historically been a tailwind for emerging market economic growth and asset valuations. However, not all emerging equity markets respond equally to the dollar’s decline.

We remain cautiously optimistic about Fixed Income returns. Tail risks are elevated, which dampens our confidence in “risk on” markets. But alpha opportunities still await risk-aware, active investors. Those who try to predict the next major macro shift may find themselves echoing Luke Skywalker’s words, “your overconfidence is your weakness.”

From the potential for maintaining a status quo that has delivered stability and decent returns in the last few years, to the risks of renewed volatility during a potential second Trump presidency, our latest article from Fixed Income on the upcoming elections in Mexico provides a comprehensive analysis.

Over the last decade investors have been forced to broaden their horizons, but many investors continue to overlook Emerging Market Local Currency Debt. Our Fixed income team offers five reasons why you should think about giving emerging markets local currency a more permanent allocation in your investment portfolio.

January is on track to be a standout month for EM debt issuance. Our Fixed Income boutique’s Sergey Goncharov reviews which sovereigns and corporates are issuing EM debt and takes the pulse of the current environment that they’re operating in.

Many overlook ESG criteria in the Emerging Markets sector, but this is missing a key opportunity it can offer: by reducing volatility, its application may make EM debt more attractive to those interested in the space but avoid it nonetheless due to political and other risks.

We’ve likely reached peak interest rates as disinflation paves the way for an economic slowdown. The 2024 outlook from our Fixed Income Boutique explains why.