Global bond investors are increasingly turning toward emerging markets (EMs), viewing several of them as more stable and safer than the United States, an unusual reversal that is reshaping portfolio decisions worldwide.

The shift is most evident in the sovereign and corporate bond markets of highly rated EMs such as the United Arab Emirates, Qatar, Taiwan, South Korea and the Czech Republic. These countries have generated returns that surpass many developed economies, both in local-currency and dollar-denominated bonds.

Why Investors Are Choosing EMs Over the US

A key driver of the trend is improving macroeconomic discipline across major emerging economies. Many nations in Asia, Africa and Latin America have moved aggressively to control inflation, reduce fiscal deficits and stabilise current-account balances.

This contrasts sharply with large developed nations, especially the G7, where debt burdens continue to rise. High debt-to-output ratios in these countries are expected to worsen in the coming years, weakening their traditional “safe haven” status.

“If I want fiscal conservatism and policy orthodoxy, I go to emerging markets right now,” said James Athey of Marlborough Investment Management, who has been increasing exposure to Mexican peso debt and South African dollar bonds.

Record EM Performance in 2025

This year is expected to be one of the strongest for EM bond markets since before the pandemic. Local-currency EM yields have been outperforming US Treasuries, supported by a 31-basis-point spread advantage over US rates since 2024. Meanwhile, currencies in China, Thailand, Malaysia and Lithuania continue to borrow at cheaper rates than the US can secure.

The Other Side: Fragile Economies Still Exist

Despite the upbeat sentiment, analysts caution that the EM universe is far from uniform. Many countries, particularly in Africa and Latin America still grapple with political instability, debt crises and currency volatility. Only a handful of EM sovereigns enjoy AA-level ratings, leaving investors selective about where they deploy capital.

Much of the outperformance is also tied to the United States itself. Concerns over US fiscal expansion, rising interest costs and market volatility have pushed global investors to look elsewhere for returns and stability.

As 2025 progresses, the balance of global fixed-income power appears to be tilting toward emerging markets. once seen as risky, now increasingly viewed as resilient alternatives to the world’s largest economy.