Positive impactEconomy
EM local bonds gain favour as dollar debt lags
Economic Times 1 hr ago·20 Sept 2026, 11:24 pm
Investors are increasingly favouring local‑currency bonds issued by emerging‑market governments over traditional dollar‑denominated debt. The move is being driven by relatively cheap valuations in those markets and the appeal of carry trades that pay higher yields than comparable U.S. assets.
The shift has already shown up in fund flows, with more money moving into EM local‑bond strategies and the performance gap between the two segments widening. However, the approach is not without risk: a series of U.S. Federal Reserve rate hikes or a stronger dollar could make dollar‑denominated assets more attractive and raise financing costs for emerging economies.
Investors should keep an eye on upcoming Fed policy meetings, any signs of a sustained dollar rally, and changes in local‑bond yields or credit spreads. Those factors will likely determine whether the current tilt toward EM local debt can be maintained.
Excerpt from Economic Times
Current trends indicate that investors are leaning towards local emerging market debt rather than dollar-denominated bonds. The allure of attractive valuations combined with ongoing carry trades fuels this shift in strategy. Fund inflows and performance metrics distinctly reflect this investor inclination.…Read the original at Economic Times
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