Yield Advantage: Why EM Local Bonds Are Leading DM Bonds in 2025
December 05, 2025
Read Time 4 MIN
Key Takeaways
- EM local currency bonds have delivered high real yields and strong 2025 performance.
- Improved policy credibility has boosted resilience EM local currency bonds to shocks.
- Elevated income and diversification make the EM local currency bonds appealing.
Emerging market (EM) local currency bonds have delivered astounding performance in 2025 despite initial fears around local currency devaluation versus the US dollar due to tariffs. Year-to-date, the asset class outpaced most fixed income segments including US high yield and the broad US and global markets. EM local bonds are an attractive option for fixed income portfolios, offering high yields from issuers with credible monetary policy in a world where developed markets grapple with sticky inflation and limits on central bank effectiveness. With strong fundamentals and higher yields, the asset class has shown that it is resilient to external risk-off shocks.
Higher Yields, Better Value
Worries about rising inflation and debt levels in the US prompted investors to consider the diversification benefits of non-US dollar assets, raising the appeal for EM local bonds, but that’s only half of the story. On top of that, sovereign bond yields in EM countries remain high, as many EM central banks started tightening in 2021 well ahead of advanced economies, front-loading hikes to contain post-pandemic inflation. The result has been high real yields which continue to be an important driver of return.
High Yields in EM Cushion Market Turbulence
Source: VanEck, Bloomberg, J.P. Morgan, ICE Data Indices, LLC. Data as of 9/30/2025. See disclosures below for information on the indices that represent each category above. US HY is represented by the ICE BofA US High Yield Index. EM LC Sov is represented by the J.P. Morgan GBIEM Global Core Index. EM HY Corp is represented by the ICE BofA Diversified HY US Emerging Markets Corporate Plus Index. EM USD Sov is represented by the JPM EMBI Global Diversified Index. EM Corp is represented by the ICE BofA EM Diversified Corporate Index. US IG Corp is represented by the ICE BofA US Corporate Index. US Agg is represented by the ICE BofA US Broad Market Index. Global Agg is represented by the ICE BofA Global Broad Market Plus Index. Real yield is the nominal yield minus the forecasted rate of inflation. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index.
EM Sovereign Local Bond Returns Exceed Those In Developed Markets YTD
Source: Morningstar. Data as of November 2025. See disclosures below for information on the indices that represent each category above. EM Local Bonds is represented by the J.P. Morgan GBI-EM Global Diversified Index. 50:50 EM is represented by the 50% J.P. Morgan EMBI Global Diversified Index/50% J.P. Morgan GBI-EM Global Diversified Index. USD EM Sovereign is represented by the J.P. Morgan EMBI Global Diversified Index. EM Corporates is represented by the J.P. Morgan CEMBI Broad Diversified Index. Global Broad Market is represented by the ICE BofA Global Broad Market Index. US Corporates is represented by the ICE BofA US Corporate Index. US High Yield is represented by the ICE BofA US High Yield Index. U.S. Broad Market is represented by the ICE BofA US Broad Market Index. US 10Y Treasuries is represented by the ICE BofA 10-Year Current Treasury Index. DM Sovereign is represented by the ICE BofA Developed Markets Sovereign Bond Index. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index. See important disclosures and index definitions at the end of the presentation.
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Resilient Markets
Emerging markets have proven to be resilient to external risk-off shocks this year, displaying a significant improvement post the Global Financial Crisis. 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. Further, higher funding in local currency and better debt management have reduced their sensitivity to global/external shocks.
After an outstanding run in 2025, EM local currency bonds have regained investor attention – leading with performance and explained by fundamentals. Strong debt management and responsible monetary policies have provided EMs with room to cut rates, while local yields remain elevated. We believe the high level of income, robust fundamentals and diversification benefits make emerging markets local currency bonds an attractive addition to a global fixed income portfolio.
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Important Disclosures
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this blog.
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.
The J.P. Morgan GBI-EM Global Core tracks local currency bonds issued by emerging markets governments.
J.P. Morgan EMBI Global Diversified Index: is comprised of U.S. dollar-denominated Brady bonds, Eurobonds, and traded loans issued by emerging markets sovereign and quasi-sovereign entities. The index weighting methodology limits the weight of countries with larger debt stocks.
J.P. Morgan GBI-EM Global Core Index (GBIEMCOR): tracks local currency denominated EM government debt. The index weighting methodology limits the weight of countries with larger debt stocks, with a maximum of 10% and a minimum of 1% to 3% depending on the amount of the country’s eligible debt outstanding.
ICE BofA US Broad Market Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market, including US Treasury, quasi-government, corporate, securitized and collateralized securities.
ICE BofA US Corporate Bond Index tracks the performance of US dollar denominated investment grade rated corporate debt publicly issued in the US domestic market.
ICE BofA Developed Markets Sovereign Bond includes sovereign debt with a country of risk that is a member of the FX G10, all Western European countries, and territories of the U. S. and Western European countries, denominated in the issuer’s local currency. The FX G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden.
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 US High Yield Index: is comprised of below-investment grade corporate bonds (based on an average of Moody’s, S&P and Fitch) denominated in U.S. dollars. The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the U.S. or a Western European nation.
Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
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 Associates Corporation.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation.
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Important Disclosures
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this blog.
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.
The J.P. Morgan GBI-EM Global Core tracks local currency bonds issued by emerging markets governments.
J.P. Morgan EMBI Global Diversified Index: is comprised of U.S. dollar-denominated Brady bonds, Eurobonds, and traded loans issued by emerging markets sovereign and quasi-sovereign entities. The index weighting methodology limits the weight of countries with larger debt stocks.
J.P. Morgan GBI-EM Global Core Index (GBIEMCOR): tracks local currency denominated EM government debt. The index weighting methodology limits the weight of countries with larger debt stocks, with a maximum of 10% and a minimum of 1% to 3% depending on the amount of the country’s eligible debt outstanding.
ICE BofA US Broad Market Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market, including US Treasury, quasi-government, corporate, securitized and collateralized securities.
ICE BofA US Corporate Bond Index tracks the performance of US dollar denominated investment grade rated corporate debt publicly issued in the US domestic market.
ICE BofA Developed Markets Sovereign Bond includes sovereign debt with a country of risk that is a member of the FX G10, all Western European countries, and territories of the U. S. and Western European countries, denominated in the issuer’s local currency. The FX G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden.
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 US High Yield Index: is comprised of below-investment grade corporate bonds (based on an average of Moody’s, S&P and Fitch) denominated in U.S. dollars. The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the U.S. or a Western European nation.
Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
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 Associates Corporation.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation.