Emerging Market Debt Indicator – January 2026

Emerging market (EM) fixed income began the year on a positive note, continuing the strong performance seen over 2025. Despite geopolitical uncertainty driving significant volatility across markets, all areas of the asset class delivered positive returns in January. The US dollar weakened over the month, boosting EM currencies, while risk appetite continued to help EM high-yield bond markets.

US Treasury yields ended the month higher across much of the curve, led by a combination of more stable labour market indicators, renewed tariff uncertainty and the nomination of Kevin Warsh as the next Chair of the Federal Reserve. Inflation remained steady at 2.7% and the Fed held policy rates steady in January, as expected. Although the Fed adopted a slightly hawkish tone by emphasising the firmer jobs data, Chair Powell noted that the scope for easing remains should inflation decline further.

The EM local debt market (JPMorgan GBI-EM GD) had a robust month, rising 2.2% in US dollar terms. Performance was driven by EM currencies, which benefitted from the weaker US dollar, particularly in Latin America, where the Brazilian real and Chilean peso were notable outperformers. The notable outlier was the Indian rupee, which weakened over the month. Local bond market moves also contributed to positive index returns, helped by Turkish rates, which benefitted from falling inflation.

The EM sovereign hard currency debt market (JPMorgan EMBI GD) rose 0.7% in January, driven solely by the high-yield market (1.5%), while the investment-grade market posted a negative return (-0.1%). The rise in US Treasury yields weighed on returns, although credit spread tightening in the high-yield market offset this. Meanwhile, spreads in the investment-grade market remained relatively unchanged. At the country level, Venezuela was the top performer in the index: markets reacted positively to the capture of President Maduro by US forces, given the potential for regime change and optimism that a bond restructuring process could finally begin.