Emerging market debt is attracting growing confidence among asset managers as improving sovereign fundamentals and the development of domestic bond markets contrast with mounting fiscal pressures in developed economies, according to speakers at FILS Europe.
Brigitte Le Bris, head of global fixed income at Ostrum Asset Management, which manages €393 billion, highlighted the improving creditworthiness of emerging market governments relative to developed economies.
“Metrics are definitely much stronger,” she said, pointing to improvements in debt-to-GDP ratios, fiscal deficits and central bank credibility.
The contrast is particularly striking in France, where public debt reached €3.6 trillion, equivalent to 119% of GDP, at the end of June 2026, according to official figures.
Iain Stealey, international CIO of fixed income at JP Morgan Asset Management, which manages $4.6 trillion, said emerging markets were among the firm’s most constructive portfolio allocations.
“I just don’t think people own enough emerging markets,” he said, citing stronger economic growth, contained inflation, sovereign rating upgrades and declining corporate leverage.
Despite a recovery in flows into emerging market local currency assets over the past year, Stealey said investor allocations remained below pre-pandemic levels, even as global financial assets had grown substantially.
The expansion of EM bond markets is also evident in the volume of outstanding debt.
According to Risky Finance data, the outstanding stock of emerging market sovereign bonds increased by 78.6% between January 2021 and September 2026, compared with 41.8% for developed markets, measured at constant exchange rates.
Sovereign bonds outstanding: developed vs emerging markets
The figures measure outstanding bonds rather than gross new issuance or government debt relative to GDP, and therefore do not necessarily imply a deterioration in sovereign creditworthiness.
Guillaume Tresca, senior emerging market strategist at Generali Asset Management, which manages €473.8 billion, said the resilience of the asset class reflected structural improvements in economic fundamentals.
“We are seeing a structural improvement in EM,” he said, pointing to stronger external balances, fiscal metrics and institutional credibility over the past four to five years.
An important development has been the shift towards local currency debt issuance, reducing reliance on foreign currency borrowing, predominantly in US dollars.
Tresca said the growth of domestic investor bases, including pension funds, had helped make emerging market bond markets less dependent on foreign capital flows.
However, asset managers differed in their preferred exposure to hard and local currency bonds.
Hard currency debt, generally issued in dollars or euros, allows investors to take emerging market sovereign credit risk without directly assuming the issuer’s domestic currency risk. Local currency bonds offer exposure to domestic interest rates and potentially higher real yields, but introduce foreign exchange risk where that exposure is unhedged.
Tresca argued that spreads on investment-grade hard currency EM bonds were relatively tight, making local currency opportunities more compelling.
“Clearly there is more value in local currency debt,” he said, highlighting substantial differences in valuations and performance between countries.
Generali typically hedges currency exposure when buying dollar-denominated bonds for its euro portfolios, but Tresca said the firm was more comfortable accepting both interest rate and currency exposure in selected local currency markets.
Le Bris was more cautious about the complexities of local currency investment.
“Going to local debt, you have to be careful,” she said, stressing the importance of choosing the right currency, duration and country.
Liquidity is another important consideration for investors increasing their exposure to emerging market debt.
One EM bond trader at FILS Europe described maintaining relationships with regional and specialist dealers outside the major international banks, providing access to different pools of liquidity when markets become stressed.
However, the trader cautioned that not every counterparty could be relied upon in difficult conditions.
“Not everybody’s going to step up,” he said, stressing the importance of maintaining relationships with dealers able to commit balance sheet during periods of volatility.
Non-bank liquidity providers have also become increasingly active in fixed income, sometimes providing prices in bonds where conventional dealers are unwilling to make markets.
But their willingness to maintain liquidity during a severe correction remains uncertain, according to the trader.
“You’re also not getting the colour that you get from the regular dealer network,” he said, referring to the information about investor flows and positioning available through traditional relationships.
Such market intelligence can also inform investment decisions before liquidity deteriorates, allowing traders, analysts and portfolio managers to identify crowded positions and adjust exposures ahead of potential volatility.
The combination of improving sovereign fundamentals, expanding domestic bond markets and more diversified sources of liquidity is strengthening the case for emerging market debt. Nevertheless, investors must balance the potential returns against currency, interest rate and execution risks that can differ substantially between countries.
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