Emerging‑market (EM) local‑currency bonds have emerged as one of 2025’s top-performing fixed-income asset classes — delivering high real yields, strong total returns, and perhaps most notable, resilience to global shocks. According to a recent research note from fund manager VanEck, EM local bonds have outpaced most segments of developed‑market (DM) debt this year; in fact they've doubled most categories' return, while yields have remained attractive.
Where many investors see EM local currency debt as “risk-on” speculative play, the data of 2025 suggests otherwise: this is increasingly a credibility story, instead. EM sovereigns across Asia, Latin America, and other regions tightened monetary policy early — many starting as far back as 2021 — and now enjoy elevated nominal yields. When combined with falling or stable local inflation in many economies, real (inflation‑adjusted) yields today are among the most attractive globally.
That yield cushion was tested, and proven robust, when global markets were jolted by 2025's external shocks. Rather than faltering, EM local bonds rebounded rapidly, underscoring the improved macro fundamentals and better debt management many EM countries have built in prior years - even while many global investors were still sleeping on the asset class.
"Emerging markets have proven to be resilient to external risk-off shocks this year, displaying a significant improvement post the Global Financial Crisis," said Fran Rodilosso, VanEck's Head of Fixed Income ETF Portfolio Management. "Even this year, after April’s US tariff tantrum, EM local bonds quickly regained their footing and have led the fixed income category year to date. This isn’t a work of magic, but policy driven: EM policymakers have built credibility through years of disciplined spending and orthodox monetary policy, resulting in more anchored inflation expectations and stronger fundamentals versus developed markets.
Beyond attractive yield and increasing stability, EM local bonds continue to make a case as a core diversification lever. For investors facing sticky inflation and policy uncertainty in developed markets, the combination of higher carry and differentiated geographic and FX exposure helps smooth overall portfolio risk.
As Rodilosso puts it, this all adds up to a buy story "leading with performance and explained by fundamentals."
