We are once again seeing net inflows into global emerging fixed income. What aspects have caused institutional investors to regain their appetite for emerging fixed income?
There are several elements behind this renewed interest. First, the attractiveness of yields and returns. Emerging market fixed income has offered very competitive results so far in 2025, even surpassing those obtained in US credit, both in investment grade and high yield. Even with the recent compression of spreads – which today are below 300 basis points – the average yield of the emerging sovereign universe is around 7%, a level that remains attractive.
Furthermore, it is worth remembering the starting point: flows towards emerging debt had been strongly negative in previous years. Between 2022 and 2024, outflows of close to 150 or 160 billion dollars were recorded. In contrast, so far in 2025, inflows—both in external and local debt—are around $16 billion. It is a change in trend, although still modest when compared to the nearly 200 billion that investment grade US credit funds have raised.
Finally, the fundamentals of emerging countries continue to show a reasonably solid foundation, reinforcing a constructive context for the asset class.
Vision on the main issuers in Latin America
Latin America presents a very broad spectrum in terms of size of economies, composition and, above all, risk profile. At one extreme, we have high credit quality countries like Chile, with low risk and broad access to both international and domestic markets. This gives them the flexibility to choose between issuing external or internal debt according to their needs, and they usually do so quite efficiently.
In an intermediate range are countries like Brazil, which also enjoys solid access to markets. This year it has made a couple of issues, but everything indicates that it will not need to return to the external market in 2025. A particularly interesting case has been that of Mexico, which issued close to 40 billion dollars in 2025, much of it destined for explicit financial support for Pemex, something that we had not seen on that magnitude before.
Finally, there are the highest risk countries, such as Ecuador, that still do not have full access to international markets, although they are not that far from achieving it. Generally, when yields fall below 10%, it is considered that an issuer of this profile could issue debt again.
Overall, the market has been very active this year in global emerging markets: gross emerging sovereign debt issuances are expected to reach around $240 billion this year, an all-time high in at least a decade. It is a reflection of the solidity of investment appetite, driven both by flows to emerging markets themselves and by the so-called crossover money—investors from developed markets seeking more attractive returns in emerging markets—. This combination has created a particularly robust demand environment.
This year Latin America is experiencing an intense electoral cycle, with multiple elections and a growing perception that the region is leaning to the right. What impact could it have on the markets?
Indeed, we are seeing a political shift to the right in several countries in the region. It all started with the election of Daniel Noboa in Ecuador in April, and the trend has been consolidating. In Argentina, for example, the midterm elections showed strong support for Javier Milei’s party, which exceeded even the most optimistic forecasts by obtaining more than 40% of the votes for the lower house. In Chile, ahead of the November elections, a candidate from the center or center-right is expected to have an advantage, while in Bolivia, the recent second round was contested between two right-wing options, which shows a clear change in the orientation of the electorate. Later, Peru will hold elections in April and Colombia in May; In the latter case, although there are still no defined candidates, President Petro cannot stand for re-election and everything indicates that a center or center-right figure could emerge. Finally, Brazil will close the cycle in October with a probable new confrontation between Lula and a candidate from the Bolsonaro bloc.
Now, more than a uniform regional phenomenon, this shift responds to specific national dynamics. In Bolivia, for example, the erosion of two decades of MAS governments, with very weak economic results, opened the space for more moderate or right-wing options. In general, victories by center or center-right candidates tend to generate initial optimism in the markets, because they are associated with reform programs and economic policies that are more favorable to investment. However, experience shows that the implementation of such reforms takes time, while economic cycles and the patience of voters are usually much shorter.
In any case, an eventual political shift in countries such as Colombia or Chile towards more pro-market governments could translate into a positive impact for local assets, by improving the prospects for macroeconomic stability and investor confidence.
How are the US macroeconomic environment, tariffs and the Fed’s monetary policy cycle influencing emerging markets?
The expectation is that the Federal Reserve will make one additional rate cut this year, following last week’s, and probably one or two more in 2026. This marks a shift toward more expansionary monetary policy, which has historically been positive for emerging markets. An environment of lower rates in the US tends to weaken the dollar, and a weaker dollar improves the external financing conditions of emerging countries, since it reduces the cost of servicing their debt denominated in that currency. In previous cycles of monetary easing combined with a weak dollar, returns from emerging assets have been consistently positive.
The other relevant factor is tariffs. This issue is more complex and its impact varies significantly by region. In Latin America, with the exception of Mexico, most countries maintain moderate trade deficits with the United States and have a relatively low trade volume. This contrasts with the large deficits that the US maintains with Asian economies such as China, Vietnam or Taiwan, which are the main objectives of the tariff measures.
Mexico, for its part, is protected by the free trade agreement with the United States and Canada (T-MEC), in force until its next review in 2026. In the rest of the region – countries such as Brazil, Argentina or Colombia – the tariffs applied have generally been basic, around 10%, except in specific cases motivated by political reasons, such as the temporary 50% increase on certain Brazilian products.
From a global perspective, tariff policies are negative for growth and increase uncertainty, but in relative terms, the direct impact on the external debt of emerging countries—especially in Latin America, Africa and Europe—is limited. So far, economies have shown resilience in the face of this uncertain environment. However, the risk is still present: trade tensions with China and other partners, such as Canada, could escalate again, suggesting that the tariff factor will be a structural element that markets will have to live with during the current US administration.
What are the main opportunities in the emerging debt market?
The emerging debt market remains very attractive, especially in the high-yield segment. This covers a wide spectrum: from countries with a BB rating, such as Colombia, which present interesting spreads, to higher risk economies, with B or CCC ratings, which are emerging from stressful situations, such as Ecuador, where we see a positive moment supported by a stable presidential mandate.
In Argentina, recent political developments have generated surprisingly positive sentiment towards the Milei formula, further supported by external factors, such as bilateral interventions by the United States that provide greater confidence to the market. Specific issuers also show opportunities: Pemex, for example, continues to benefit from explicit support from the Mexican Treasury, which reinforces its attractiveness.
Beyond the big emitters, some smaller economies also stand out. Costa Rica, for example, has implemented tax and growth reforms that could bring it closer to an investment grade rating in the near future.
This interest in emerging markets is reflected in the positive flows to the region, driven by the solidity of fundamentals: many countries have orderly fiscal accounts and relatively low levels of public debt compared to developed markets such as the US, Japan, France or the United Kingdom.
Furthermore, the evolution of sovereign ratings reinforces this attractiveness: in both 2024 and 2025, upgrades far exceed downgrades, showing a positive trend in the perception of credit risk in emerging markets. This makes emerging debt an opportunity for both yield and exposure to strong fundamentals.
Neuberger Berman Short Duration Emerging Markets Debt: why does it make sense to invest in short duration emerging fixed income in the current environment?
Short duration emerging fixed income offers an attractive return profile combined with controlled risk. The strategy we follow at Neuberger Berman Short Duration Emerging Markets Debt is designed to be more conservative: its average rating is BBB- and the average duration is around 2.5 years, which limits sensitivity to interest rate movements. The portfolio combines sovereign and emerging corporate external debt in approximate 50/50 proportions, and is exclusively in hard currencies, mainly dollars and euros, with exchange rate coverage, which reduces exchange rate risks.
Despite the recent low rate environment, this strategy still offers a return of around 5.7-5.8%, which is very attractive considering the duration and credit quality of the universe. In other words, it allows investors to obtain a high yield per unit of duration without assuming excessive risks, which makes it a solid option within the emerging fixed income segment today.
Profile to which the Neuberger Berman Short Duration Emerging Markets Debt is aimed
This product is designed for a more conservative profile looking for attractive performance without taking excessive risks. The short duration strategy limits volatility in the face of interest rate movements, making it more suitable for investors who prioritize stability and capital preservation within the emerging debt universe.
In contrast, longer duration instruments, such as the Emerging Markets Global Reversal Fund, with an average duration of 6.5 years, benefit more in falling rate scenarios, such as the one we have seen in 2025, but incorporate a significantly higher level of volatility. For this reason, the short duration strategy is presented as an intermediate option, which combines a conservative profile with exposure to attractive returns in the current context.