EM Bonds Extend Gains As The Dollar Faces Mounting Pressure
June 10, 2025
Read Time 6 MIN
The VanEck Emerging Markets Bond Fund was up 1.83% in May, compared to up 1.27% 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). Year-to-date (YTD), the fund is up 6.54%, compared to 5.26% and 3.30% for the Global Agg and 10-year treasuries, respectively. During May, South Africa and Zambia local currency led outperformers. An underweight in Brazil hard-currency bonds led underperformers. We remain very bullish on local currency, cautious on USD duration, and USD spread duration. The fund has around 60% in curated local currency, 40% in USD bonds, with a noteworthy underweight to Brazil and South Africa in local currency. Carry is 7.2%, YTW is 8.9%, and duration is 4.9.
EM Bonds Extend Gains As The Dollar Faces Mounting Pressure
Average Annual Total Returns* (%) (In USD)
| As of May 31, 2025 | |||||||||
| 1 Mo | 3 Mo | YTD | 1 Yr | 3 Yrs | 5 Yrs | 10 Yrs | |||
| Class A: NAV (Inception 07/09/12) | 1.79 | 2.74 | 6.56 | 9.28 | 6.89 | 5.41 | 2.73 | ||
| Class A: Maximum 5.75% load | -4.07 | -3.17 | 0.43 | 3.00 | 4.80 | 4.17 | 2.13 | ||
| Class I: NAV (Inception 07/09/12) | 1.83 | 2.84 | 6.54 | 9.70 | 7.28 | 5.73 | 3.04 | ||
| Class Y: NAV (Inception 07/09/12) | 1.80 | 2.80 | 6.65 | 9.46 | 7.12 | 5.63 | 2.97 | ||
| 50% GBI-EM/50% EMBI | 1.27 | 3.20 | 6.17 | 8.84 | 5.84 | 1.76 | 2.47 | ||
| As of March 31, 2025 | |||||||||
| 1 Mo | 3 Mo | YTD | 1 Yr | 3 Yrs | 5 Yrs | 10 Yrs | |||
| Class A: NAV (Inception 07/09/12) | -0.30 | 3.40 | 3.40 | 6.32 | 4.18 | 7.60 | 2.34 | ||
| Class A: Maximum 5.75% load | -6.03 | -2.54 | -2.54 | 0.21 | 2.15 | 6.33 | 1.73 | ||
| Class I: NAV (Inception 07/09/12) | -0.27 | 3.31 | 3.31 | 6.53 | 4.54 | 7.92 | 2.64 | ||
| Class Y: NAV (Inception 07/09/12) | -0.28 | 3.46 | 3.46 | 6.45 | 4.42 | 7.84 | 2.57 | ||
| 50% GBI-EM/50% EMBI | 0.39 | 3.28 | 3.28 | 5.42 | 3.11 | 2.94 | 2.27 | ||
* Returns less than one year are not annualized.
Expenses: Class A: Gross 1.83%, Net 1.21%; Class I: Gross 1.37%, Net 0.86%; Class Y: Gross 1.33%, Net 0.96%. Expenses are capped contractually until 05/01/26 at 1.20% for Class A, 0.85% for Class I, 0.95% for Class Y. Caps exclude acquired fund fees and expenses, interest, trading, dividends, and interest payments of securities sold short, taxes, and extraordinary expenses.
The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.
The “Net Asset Value” (NAV) of a Fund is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF’s intraday trading value. Investors should not expect to buy or sell shares at NAV.
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Dollar down remains an asset-price see-through, while most market participants lament a lack of direction and clarity – not sure what they’re talking about. U.S. inflation is higher than China and many EMs, which alone is a USD depreciation argument, before invoking the now-fashionable “USD/treasury loss of status” argument. We continue to see reserve status for the dollar as continuing but also see it sharing that status with other deserving currencies in EM over time.
Eyes still on treasuries. The 30y is near 5%, and JBG 30y broke above 3%. G-10 rates are normally highly correlated, which is risky enough. But FX hedging costs have changed significantly, making FX-hedged US treasury yields way too low compared to Japanese (or Chinese) government bonds onshore. Why should they buy treasuries? We show how this looks to a Japanese investor (meaning a p/l in JPY), and a Chinese investor (meaning a p/l in CNY) below. Hard to see why normally core buyers such as Japan or China see value in treasuries given that USD hedging costs make their own onshore JPY or CNY bonds more attractive. This is an invisible dynamic to many but it’s real and real powerful. And just getting started.
Exhibit 1 – Why Would a Japanese Investor Buy Treasuries As Opposed to JGBs?
JPY-Hedged 10Y Treasury Yields Too Low
Source: VanEck Research, Bloomberg, LP. Data as of June 2025.
Exhibit 2 - Why Would a Chinese Investor Buy Treasuries As Opposed to JGBs or CGBs?
CNY-Hedged Treasury Yields Too Low
Source: VanEck Research, Bloomberg, LP. Data as of June 2025.
China, trade policy, and fiscal policy still generating narratives. Policy uncertainty can hit growth; we get and accept that that’s a risk. But inflation is surprising on the downside, compensating for this risk via greater odds of cuts. But every day, CNY is stable and EMFX are stronger, pointing to far greater disinflation trends in EM. And the Fed is tight and can ease - what do you think will happen to the dollar on Fed easing? EMFX’s rally would likely accelerate, as would rallies in their yield curves as a result of lower inflation and inflation expectations. Rates are generally higher in real terms in EM than in DM.
Emerging Markets Bond Fund - Class I
Exposure Types and Significant Changes
The changes to our top positions are summarized below. Our largest positions in May were Malaysia, Thailand, Brazil, China and South Africa.
- We increased our local currency exposure in China and Indonesia. China’s bonds benefitted from additional policy easing, as well as a 90-day tariff reprieve. Further, China’s central bank adopted a cautious and patient currency stance, guiding the renminbi daily fix a touch stronger. In terms of our investment process, this improved the policy test score for China. The tariff pause was a boon for Indonesia as well – it allowed the central bank to resume the easing cycle (against the backdrop of very low inflation) without jeopardizing the currency’s stability. These developments improved Indonesia’s technical test score.
- We also increased our local currency exposure in South Korea, Thailand, Malaysia, and Singapore. These countries can benefit from China’s growth upside, the tariff truce, as well as the renminbi’s strength/stability. In addition, the region is going through some major soul-searching as regards to the role of U.S. Dollar-based assets in local portfolios. In terms of our investment process, this improved the technical test scores for these countries.
- Finally, we increased our hard currency sovereign exposure in Ghana and Costa Rica and local currency exposure in Paraguay. Ghana secured a staff-level agreement with the IMF, while strong trade and the cedi’s resulting appreciation improved the country’s debt metric. These factors strengthened Ghana’s economic and policy test scores. Costa Rica’s policy and technical test scores should benefit from a lack of new issuance and President’s high approval ratings, which signal policy continuity after the 2026 elections.
- We reduced our local currency exposure in Peru and Colombia. Peru’s policy rate is quite low now, whereas yet another government reshuffle slows down reforms, worsening the policy test score for the country. Colombia’s Flexible Credit Line with the IMF got suspended on the back of fiscal and policy concerns, and the policy rate cut might have been premature under these circumstances. In terms of our investment process, this has worsened the policy test score for the country.
- We also reduced our hard currency corporate exposure and hard currency sovereign exposure in Brazil, and local currency exposure in Mexico. Brazil’s tightening cycle is coming to an end and inflation expectations are peaking, supporting the country’s economic and policy test scores. Hence there is no need to continue hiding in hard currency debt. Mexico’s local duration has the highest correlation to the U.S. duration in the region, in addition to the central bank’s maintaining the pace of rate cuts and negative growth spillovers from the U.S. These factors worsened Mexico’s policy and technical test scores.
- Finally, we reduced our hard currency sovereign exposure in Sri Lanka and Pakistan, and local currency exposure in Kazakhstan. We took profits on Sri Lanka’s bonds after a nice rally. The latest military conflict between India and Pakistan has worsened the latter’s policy test score. Kazakhstan is likely to be affected by lower oil prices and the greater uncertainty about the Russia-Ukraine war, which worsened the technical test scores for the country.
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DISCLOSURES
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Duration measures a bond's sensitivity to interest rate changes that reflects the change in a bond's price given a change in yield. This duration measure is appropriate for bonds with embedded options. Carry is the benefit or cost for owning an asset. Yield to worst is a measure of the lowest possible yield that can be received on a bond with an early retirement provision. Averages are market weighted. The yields presented do not represent the performance of the Fund. These statistics do not take into account fees and expenses associated with investments of the Fund.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index's performance is not illustrative of the Fund's performance. Indices are not securities in which investments can be made.
The Fund's benchmark index (50% GBI-EM/50% EMBI) is a blended index consisting of 50% J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Diversified and 50% J.P. Morgan Emerging Markets Bond Index (EMBI). The J.P. Morgan GBI-EM Global Diversified tracks local currency bonds issued by Emerging Markets governments. The J.P. Morgan EMBI Global Diversified tracks returns for actively traded external debt instruments in emerging markets, and is also J.P. Morgan's most liquid U.S. dollar emerging markets debt benchmark.
The Bloomberg Global Aggregate Index measures the performance of global investment grade fixed income securities.
The FTSE Treasury Benchmark 10 year measures the return of the 10 year U.S. Treasury.
ICE BofA Global Broad Market Index tracks the performance of investment grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi-government, corporate, securitized and collateralized securities. ICE BofA Current 10-Year U.S. Treasury Index is comprised of the most recently issued 10-year U.S. Treasury note.
The MSCI ACWI Index is a global equity benchmark that captures large- and mid-cap stocks across 23 developed and 24 emerging markets, representing approximately 85% of the global investable equity universe.
The S&P 500 Index is a widely recognized U.S. equity benchmark that tracks 500 of the largest publicly traded companies, reflecting the performance of the core U.S. stock market.
Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The index may not be copied, used or distributed without J.P. Morgan's written approval. Copyright 2025, J.P. Morgan Chase & Co. All rights reserved.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. The Fund is subject to risks which may include, but are not limited to, risks associated with active management, credit, credit-linked notes, currency management strategies, derivatives, emerging market issuers, energy sector, ESG investing strategy, foreign currency, foreign securities, hedging, high portfolio turnover, high yield securities, interest rate, market, non-diversified, operational, restricted securities, investing in other funds, sovereign bond, and special risks considerations of investing in African, Asian and Latin American issuers, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Derivatives may involve certain costs and risks such as liquidity, interest rate, and the risk that a position could not be closed when most advantageous.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.
© 2025 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.
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DISCLOSURES
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Duration measures a bond's sensitivity to interest rate changes that reflects the change in a bond's price given a change in yield. This duration measure is appropriate for bonds with embedded options. Carry is the benefit or cost for owning an asset. Yield to worst is a measure of the lowest possible yield that can be received on a bond with an early retirement provision. Averages are market weighted. The yields presented do not represent the performance of the Fund. These statistics do not take into account fees and expenses associated with investments of the Fund.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index's performance is not illustrative of the Fund's performance. Indices are not securities in which investments can be made.
The Fund's benchmark index (50% GBI-EM/50% EMBI) is a blended index consisting of 50% J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Diversified and 50% J.P. Morgan Emerging Markets Bond Index (EMBI). The J.P. Morgan GBI-EM Global Diversified tracks local currency bonds issued by Emerging Markets governments. The J.P. Morgan EMBI Global Diversified tracks returns for actively traded external debt instruments in emerging markets, and is also J.P. Morgan's most liquid U.S. dollar emerging markets debt benchmark.
The Bloomberg Global Aggregate Index measures the performance of global investment grade fixed income securities.
The FTSE Treasury Benchmark 10 year measures the return of the 10 year U.S. Treasury.
ICE BofA Global Broad Market Index tracks the performance of investment grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi-government, corporate, securitized and collateralized securities. ICE BofA Current 10-Year U.S. Treasury Index is comprised of the most recently issued 10-year U.S. Treasury note.
The MSCI ACWI Index is a global equity benchmark that captures large- and mid-cap stocks across 23 developed and 24 emerging markets, representing approximately 85% of the global investable equity universe.
The S&P 500 Index is a widely recognized U.S. equity benchmark that tracks 500 of the largest publicly traded companies, reflecting the performance of the core U.S. stock market.
Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The index may not be copied, used or distributed without J.P. Morgan's written approval. Copyright 2025, J.P. Morgan Chase & Co. All rights reserved.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. The Fund is subject to risks which may include, but are not limited to, risks associated with active management, credit, credit-linked notes, currency management strategies, derivatives, emerging market issuers, energy sector, ESG investing strategy, foreign currency, foreign securities, hedging, high portfolio turnover, high yield securities, interest rate, market, non-diversified, operational, restricted securities, investing in other funds, sovereign bond, and special risks considerations of investing in African, Asian and Latin American issuers, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Derivatives may involve certain costs and risks such as liquidity, interest rate, and the risk that a position could not be closed when most advantageous.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.
© 2025 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.