Key Takeaways:

• Developed markets face uncertainty, while emerging markets offer higher yields and lower volatility.
• EMBX 30-day SEC yield: 6.4%^†
• IMF highlights EM resilience; fiscal pressures in developed markets support EM and gold.
• China’s stable, strengthening yuan underpins EM strength and global trade shifts.

The VanEck Emerging Markets Bond ETF (EMBX) was up 0.91% in October, compared to up 1.29% for its benchmark. Year-to-date, the fund is up 16.46%, compared to 14.51% for its benchmark, the 50% J.P. Morgan Government Bond Index - Emerging Markets Global Diversified (GBI-EM) and 50% J.P. Morgan Emerging Markets Bond Index (EMBI) and 7.81% and 7.80% for the Global Agg and 10-year treasuries, respectively. As of October 31, 2025, the fund had an average yield to worst (YTW) of 8.3%, a carry of 6.7%, and a duration of 5.3 years. As of November 11, 2025, the 30-day SEC yield was 6.4%. In the past 5 years, the fund has returned 5.06% per year, compared to 2.55% for its benchmark, negative 2.03% and negative 2.52% for the Global Agg and 10-year treasuries, respectively. Argentina was the biggest outperformer again. In October, we were simply overweight, whereas earlier outperformance was due to not owning it for the bond price collapse two months ago as well as buying the collapse. Our overweight in South Africa local currency continues to shine and we saw an excellent rally in Bolivia USD bonds following important elections. Romania and Saudi were underperformers. We have pulled in our horns after very strong performance. Local currency exposure is lower at 49%, and we are reducing overweight positions in selected USD and local-currency markets.

Average Annual Total Returns^* (%) (In USD)

There’s a lot of white space, or is it just a clear horizon? The white space argument is that the tariff issue is basically only delayed for a year, the U.S. government is shut down, the labor market is uncertain, as is inflation and monetary policy, geopolitics still loom, with markets at highs. Enough about developed markets (DM). The clear horizon argument is that EM bonds’ higher carry and superior fundamentals should keep outperforming DM, as has been the case for decades, regardless. These two framings have game-theoretic implications. The white space scenario has DM markets buffeted by…who knows? That’s the scenario – markets at highs and nobody knows what’s coming. The clear horizon scenario says you’ll get paid (EM has higher carry) and the risk is that the volatility in EM bonds continues to be lower than that of DM bonds (true for over 5 years now). Higher carry and lower volatility in EM bonds, which remains the case, is going to become harder and harder for investors to ignore (it’s pretty amazing to be able to resist decades long return/volatility statistics, but you are doing it!) …even if we have a bumpy road into December, as we expect.

The IMF saw white space for DM and a clear horizon for EM. We published our takeaways here. The worry is DM sovereign risk, which maps directly to the financial system and derivatives. That is the risk for any country, short of alien invasion…but post-GFC forbearance should be assumed. EM was described as “resilient”. This is our “fiscal dominance” thesis, which the IMF has continued to echo (to our joy) but which markets are resisting (also to our joy, we’re here to make money). The GFC has real implications, and one is that the sovereign (U.S.) has to backstop global derivatives markets. This preserves “the system” of course. But, the financial repression it involves simply transmits to the currency. Thus the rally in gold, for example. This rally was caused by central banks fleeing greater risks in treasuries following sanctions on the Russian central bank. Ken Rogoff called these sanctions a default. But, the system is being preserved, the asset price implications (higher gold prices) are being ignored while they can be. One asset price being ignored at great cost, moreover, is CNY, which has been remarkably stable/strengthening. Remember, all the cool kids predicted a devaluation in response to tariffs that would hit all EMFX. The opposite happened, and the market still ignores this CNY rally. We absolutely love that the market continues to ignore this and wrote “The Curiously Unpopular Case for RMB Appreciation” to share this love.

China had a “glow up”. Now that DMs are pursuing state-directed capitalism, “overproduction” and “overcapacity” are no-longer being used to describe the Chinese economy…because DMs are copying China! Everyone was bullish China, nobody was long. China has presided over arguably the greatest economic growth in history over the past 50 years. The IMF has arguably presided over a major balance-of-payments imbalance over the past 30 years. The one that allowed China, Asia and many EMs to pile up massive mercantilist surpluses that were part of the bullish EM argument all along. A core argument in our “RMB Appreciation” piece is simple game theory – China and others are up to their necks in USD and tariff negotiations are telling them USD must go down against their own currency…you don’t need to be a world-class trader to know that you sell (or hedge) your USD, which is exactly what is happening right now as we speak. The CNY stability and strength that is resulting is central for EMs because they trade more with China than with the U.S. We love that there is no attention to this central development, still.

EXPOSURE TYPES AND SIGNIFICANT CHANGES

The changes to our top positions are summarized below. Our largest positions in October were South Africa, Mexico, Poland, Thailand and Brazil:

• We increased our hard currency sovereign exposure in Brazil and Romania. Brazil’s geopolitical story is getting better (President Trump-President Lula “bromance”), but these factors can boost President Lula’s domestic popularity in the run up to the elections, which is something that local bond investors might not appreciate. In terms of our investment process, this improved the policy/politics test score for Brazil’s sovereign bonds. Romania’s duration is expected to benefit from the on-going (albeit gradual) progress in fiscal consolidation and the central bank’s tight policy stance. The former also bodes well for the EU funds’ inflows. These factors improved the policy test score for Romania.
• We also increased our local currency exposure in Turkey and hard currency sovereign exposure in Bolivia. The Turkish cabinet confirmed its anti-inflation stance, which might require the stable lira. On-going disinflation and fiscal consolidation leave room for more (cautious) rate cuts, improving the policy/politics test score for the country. Bolivia’s policy/politics test score got a major boost after the market-friendly presidential elections outcome, which supports hopes about the eventual IMF engagement and points to the availability of funds to make bond payments.
• Finally, we increased our hard currency sovereign exposure in the United Arab Emirates, Kuwait and Egypt in order to get more duration exposure (reflecting the improved technical test score). In addition, Kuwait’s new bond was attractively priced, while Egyptian assets were expected to benefit from the regional geopolitical stabilization.
• We reduced our local currency exposure in Poland and the Czech Republic. The euro’s inability to get sustainably above 1.18/U.S. dollar despite elevated longs is a yellow flag, which worsens the technical test score for the region. Poland’s fiscal concerns are on the rise, and the new less-EU oriented government in the Czech Republic signals that the budget deficit might widen in the current months, worsening the policy test score for the country.
• We also reduced our local currency exposure in Colombia and hard currency sovereign exposure in Morocco. Colombia’s fiscal backdrop is deteriorating against the backdrop of the trade war tensions with the U.S. Some members of the central bank’s board sound hawkish, but the board is split, so that the extreme negative dovish tail is not getting smaller, worsening the policy test score for the country. Morocco’s street protests also worsened the country’s policy/politics test score.
• Finally, we reduced our hard currency corporate exposure in China and Paraguay and local currency exposure in China. China’s local yields likely to continue creeping higher as the government employs more policy stimulus to prop up growth, while there are no meaningful positive catalysts in the housing sector. These factors worsened the policy test score for the country. Regarding the Paraguayan corporate bond, our decision reflected specific governance concerns.

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