The Best Kept Secret in Bonds This Year
August 27, 2025
Watch Time 2:48 MIN
Bonds are the best performing asset class in global fixed income this year. And EM local currency bonds have really stood out in particular. The asset class is up 11% year to date, which is 6% above global developed market sovereigns and 8% above the US broad market.
This may come as a surprise to many investors given the news flow that we've seen that are really impacting fixed income markets. We see a worsening debt and deficit picture in the U.S., the initial shock and ongoing uncertainty of tariffs, domestic political dysfunction, geopolitical uncertainty, and the US's global standing increasingly being questioned by global investors. It's hard to separate the noise from what's actually going to play out, but we do believe that all of these factors do point to higher long-term rates, higher volatility and higher for longer inflation.
We also see these factors pointing to downward pressure on the dollar. As you would expect, many investors are increasingly looking to diversify their US-centric fixed income portfolios. And we think that local currency sovereign bonds are one of the best ways to do that right now. We see several reasons why the asset class can continue to outperform compared to developed markets. Emerging markets have lower debt, lower deficits, higher yields, and independent central banks that have been successful in controlling inflation.
Despite the performance we've seen this year, the higher yields and the increasingly compelling investment case for the asset class, we think many investors are under allocated to emerging market local currency bonds. This may be due to a perceived riskiness of the asset class, but that is based on assumptions that we don't believe really reflect the currency of the world right now. In fact, local currency bonds have exhibited lower risk versus developed market bonds over the last five years.
EMLC is the VanEck J.P. Morgan Local Currency Bond ETF, which is the largest and most liquid US-listed ETF that provides broad and diverse exposure to local currency sovereign bonds.
Adding EM local currency bonds to a portfolio can provide a higher yield, allows you to diversify away from US rates and benefit from EMFX appreciation and the ongoing weakness in the dollar. It's an investment grade asset class, so you're not adding significant credit risk in order to achieve these benefits within your portfolio.
IMPORTANT DISCLOSURE
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.
Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.
There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer duration fixed-income securities and during periods when prevailing interest rates are low or negative.
An investment in the VanEck J.P. Morgan Local Currency Bond ETF(EMLC) may be subject to risks which include, among others, foreign securities, emerging market issuers, foreign currency, special risk considerations of investing in European, Asian, and Latin American issuers, credit, interest rate, high yield securities, sovereign bond, cash transactions, market, operational, sampling, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, issuer-specific changes, non-diversified, and index-related concentration risks, 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.
VanEck J.P. Morgan EM Local Currency Bond ETF (EMLC) is not sponsored, endorsed, sold or promoted by J.P. Morgan and J.P. Morgan makes no representation regarding the advisability of investing in EMLC. J.P. Morgan does not warrant the completeness or accuracy of the J.P. Morgan GBI-EM Global Core Index. "J.P. Morgan" is a registered service mark of JPMorgan Chase & Co. © 2018. JPMorgan Chase & Co. All rights reserved.
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.
666 Third Avenue, New York, NY 10017
