The VanEck Emerging Markets Bond Fund returned -0.13% in July, compared to 0.26% 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, the Fund is up 10.4%, compared to 5.7% and 4.3% for the Global Agg and 10-year Treasuries, respectively. In July, local currency exposure in Brazil and the avoidance of local currency positions in India drove outperformance. The Fund has approximately 59% in local currency and 41% in mostly higher-yielding US dollar-denominated bonds. Carry is 6.7%, yield to worst is 7.9% and duration is 5.3.

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

We maintain our core views. EM debt’s resilience and continued outperformance of DM bonds is based on superior fiscal and monetary policies; crudely, low debts and deficits and high real interest rates on the part of the EMs – the opposite on the part of the DMs. The fact that UK Gilts (bonds issued by the UK government to finance public spending) are yet again facing fiscally related turmoil is another reminder, as is EM bonds’ even greater than usual outperformance of DM bonds in a tumultuous 2025. Asset price implications are upside risks to EM bonds, particularly local currency bonds and high yield sovereign bonds, and that remains our core view and positioning.

USD depreciation is the “hook” for many investors’ interest in EM bonds; we believe that is wrong, but we’ll take it. “The dollar” is primarily measured against EUR and JPY (via DXY, for example), which happen to also be very low-yielding currencies. We don’t look at “the dollar”, rather we look at every individual currency cross (like BRL) and the currency’s yields (mid-teens for Brazil). Moreover, most EMs trade far more with China than with the U.S., so CNY is arguably more important than USD. In fact, we just published a piece on this topic titled “The Curiously Unpopular Case for RMB Appreciation”.

Is the Trump U.S. Federal Reserve (Fed) already here? Frankly, we were a bit worried about an August reversal of EM’s strong 2025 performance. But the greater likelihood of Fed easing following the Trump administration’s greater power (the popular media have followed these developments ranging from retirements to a pre-naming of Chairman Powell’s successor), takes a big risk out of the way. We are not saying that the new Fed is good or bad, we are saying that non-resolution would have meant much tighter interest rate policy. The clearest winner from this is EM currencies, not duration, in our view. This is due to ongoing fiscal and sanctions concerns from the U.S. Also, as we noted in earlier publications, FX hedging costs for major financers of U.S. debt (such as Japan and China) greatly discourage the purchase, or even ownership of, FX-hedged U.S. Treasuries, greatly favoring ownership of their unhedged local treasuries in their own currencies.

Exposure Types and Significant Changes

The changes to our top positions are summarized below. Our largest positions in July were Brazil, Malaysia, South Africa, Thailand and Indonesia.

• We increased our local currency exposure in Chile and Uganda. The Chilean peso underperformed vs. peers, and the country’s assets should benefit from a more market-friendly outcome of the 2026 presidential elections. These developments improve Chile’s technical and policy test scores. Uganda’s economy and the fiscal performance are benefitting from higher commodity prices (gold, coffee), whereas a potential loan from the IMF should give a boost to its external position. In terms of our investment process, this improves the technical and policy test scores for the country.
• We increased our hard currency sovereign exposure in Saudi Arabia, Egypt, Bolivia, Guatemala, Nigeria and Bosnia and Herzegovina. Regarding Bosnia and Herzegovina, this was an attractively priced new issue (against the backdrop of solid fundamentals and policies). Guatemala’s bond was also a new issue, and while there are some concerns about political risks, the macro backdrop is solid and improving. Nigeria is expected to benefit from higher oil and gas receipts, which improved the country’s economic test score. Bolivia’s improving political outlook supports its repayment capacity and has also boosted its policy and politics test score. Egypt’s sovereign bonds have attractive valuations, and the country might benefit from the easing regional geopolitical tensions, which should strengthen its politics test score. Saudi Arabia’s tight spread vs. U.S. Treasuries puts it in a good position to benefit from a rally in duration if the U.S. growth disappoints and the Fed turns dovish. In terms of our investment process, this improves the technical test score for the country.
• We also increased our hard currency sovereign exposure in Argentina and hard currency corporate exposure in Argentina and Singapore, as well as our quasi-sovereign exposure in Peru. Argentina’s corporate bond was an attractively priced new issue, while Argentina’s sovereign bonds were expected to benefit from a successful IMF review, which unlocked access to USD2bn, improving the policy test score for the country. With regard to the corporate bond in Singapore, we picked up a low-dollar price asset from a company with a good liquidity position and a debt-reduction trajectory. A major driver in Peru was a debt reprofiling plan, which is expected to ease the company’s debt burden.
• We reduced our local currency exposure in Poland and Hungary on the back of concerns about a stronger momentum in the U.S. dollar – driven in part by the widening growth differential between the U.S. and Europe – against the backdrop of tighter end-of-summer liquidity, which worsened the technical test score for both countries. In addition, we now have greater concern about Poland’s fiscal trajectory, which can weaken the policy test score for the country.
• We also reduced our hard currency sovereign exposure in Romania after the post-presidential election relief rally. The election outcome significantly lowered risks associated with the disbursement of the EU funds, but additional positive catalysts for this asset class might be limited right now. In terms of our investment process, this lowered Romania’s policy/politics test score.
• Finally, we reduced our local currency exposure in Zambia. We don’t believe that positive macro catalysts behind the original trade are fully exhausted, but we opted to take profits after a very sizable rally in the Zambian kwacha, which weakened the technical test score for the country.

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