Emerging Market Debt Indicator – August 2025

All areas of the emerging market (EM) fixed income asset class posted gains, thanks to a combination of US dollar weakness, lower US Treasury yields, and improved investor sentiment. The market reaction to US trade tariffs taking effect on 7 August was subdued overall.

In the US, a combination of weaker labour-market data, dovish signals from the US Federal Reserve (Fed), and political machinations drove US Treasury market moves. Improving prospects for interest-rate cuts boosted short-dated government debt, while rising political and fiscal risks weighed on longer-dated bonds. The upshot was a notable steepening of the US yield curve.

The sovereign hard currency market (JPMorgan EMBI GD) delivered a positive return of 1.6%. High-yield markets outperformed again, thanks to improved appetite for risk. Meanwhile, investment-grade markets benefited from the fall in US Treasury yields, reflecting rising expectations of a rate cut by the Fed. Stronger investor sentiment meant riskier markets, such as Venezuela and Lebanon, were the top performers. In contrast, Argentina’s debt market underperformed as allegations of government corruption stole the headlines.

It was a stronger month for the local currency debt market (JPMorgan GBI-EM GD), which gained 2.2% overall in US dollar terms – reflecting positive performance of currency and rates markets. In a reversal of the weakness seen in July, several Latin American currencies outperformed, with easing concerns over the fiscal outlook for Brazil also boosting government bonds there. In contrast, India’s local currency bonds sold off as proposed tax cuts sparked fiscal concerns, and the rupee weakened as the implementation of hefty US tariffs continued to weigh on sentiment. Elsewhere, some African markets - including Egypt and Kenya – benefited from interest rate cuts.