Authors
The risk premiums of emerging market bonds are approaching their historic lows, making the market segment appear relatively expensive at first glance. However, those who only look at the surface overlook the fact that the credit quality and resilience of the market have improved noticeably in recent years. At the same time, local growth momentum remains positive. This makes emerging market bonds a strategically relevant asset class.
Our conclusion: The real strength lies beneath the surface – and opens up opportunities for active investors in a structurally mature environment.
Emerging markets: solid basis despite narrow spreads
At 204np, the spreads for emerging market bonds (Bloomberg EM USD Aggregate Index) are currently only around 50 basis points above the all-time low – a level last reached before the global financial crisis. However, in contrast to then, the current valuation is based on a much more solid foundation.
Three structural drivers make the difference:
- More robust credit quality: The proportion of investment-grade issuers has risen significantly. The current rating distribution of the Bloomberg EM USD Aggregate Index clearly shows this qualitative change (see chart).
- Local growth as an anchor of stability: The growth differential to developed markets remains at 2-3 percentage points – a structural advantage that ensures greater economic independence and supports local capital market demand.
- Market maturity & less dependence on the USD: More and more countries and companies are financing themselves in local currency. This development reduces vulnerability to external interest rate cycles and increases the resilience of capital flows.
“It’s the look behind the scenes that creates real added value – especially in heterogeneous markets such as emerging markets.”
Emerging markets – A silent transformation
OAS via government bonds (R), source: Bloomberg, Bloomberg EM USD Aggregate Total Return Index Value Unhedged (EMUSTRUU),
own calculation; period: 31.12.2003 to 07.07.2025. (L)
Conclusion:
Where broad indices generalize, differentiated credit assessment becomes a necessity. And this is precisely where the added value of fundamental active strategies begins.
Risks
Price losses due to increases in yields and/or higher risk premiums are possible. A total loss cannot be ruled out either.
Past performance is not an indication of future results, nor can future performance be guaranteed.
Disclaimer
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contained in this document reflect the current assessment on the date of publication. This information does not constitute a complete analysis of all material facts relating to any country,
region or market. This is not to be considered as financial analysis.
If statements are made about market developments, returns, price gains or other asset
growth as well as risk ratios, these merely constitute forecasts for whose occurrence we assume
no liability. Past performance, simulations or forecasts in particular are not a reliable
indicator of future performance. Assets can go up as well as down. All information has been carefully compiled; partly with recourse to information from third parties.Individual details may prove to be no longer or no longer fully accurate, in particular as a result of the passage of time, changes in the law, current developments on the markets, possibly at short notice, and may change at any time without prior notice. Therefore, no guarantee is given that all the information is correct, complete and up to date.
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account may incur costs; ongoing bank charges may also be incurred. Transaction costs depend
on the asset class: For government bonds and collateralised bonds such as mortgage
bonds, they average around 0.02 percent, for corporate bonds 0.085 percent. For less liquid
bonds, the transaction costs can also be significantly higher than 0.25 per cent. It should also
be noted that transaction costs can temporarily be significantly higher during periods of market
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