Emerging bond funds have recorded 12 straight weeks of inflows as healthier public finances and higher real yields challenge the traditional link between rising US borrowing costs and losses in developing economies.
Investors are continuing to add to emerging-market debt even as borrowing costs in the developed world stay elevated, a shift that underscores how far the mood has changed in fixed income. Bank of America data based on EPFR Global show emerging bond funds have attracted 12 straight weeks of inflows, while returns from emerging-market bonds have outpaced Treasuries by a wide margin since the start of 2025, according to market data cited by Bloomberg and asset managers following the trend.
The appeal lies in a changing comparison set. Rather than being measured mainly against US government bonds, emerging-market debt is increasingly being judged on its own terms. Asset managers including JPMorgan Asset Management, Generali Asset Management and Ninety One say the sector benefits from comparatively healthier public finances, more independent central banks and, in many cases, higher inflation-adjusted yields than those available in rich-world debt. Aberdeen Investments has also argued that strong starting yields give investors a cushion against volatility, particularly in hard-currency sovereign bonds and frontier markets.
That resilience has not eliminated risk. India has taken unusual steps to support its currency, while several lower-rated borrowers still face very high dollar funding costs. VanEck and State Street Global Advisors have both pointed out that the strongest opportunities are not uniform across the asset class, with some managers preferring select higher-yielding dollar bonds over local debt in markets where valuations look stretched.
Still, the broader message from investors is that the old relationship between rising US yields and emerging-market weakness is no longer holding as tightly as it once did. Desmond Lawrence of State Street said the pattern has shifted because advanced economies are wrestling with bigger deficits and heavier debt burdens, while many emerging economies entered this phase with less leverage. In his view, that has changed the relative case for the asset class at a time when investors are looking beyond traditional safe havens.
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