Emerging markets debt is entering a new phase shaped by a more fragmented, multipolar world. Geopolitical uncertainty, higher energy prices and shifting global rate expectations have tested markets. Despite these headwinds, emerging markets debt showed greater resilience in the first half of 2026 than in past cycles, supported by stronger policy frameworks, improved fundamentals and deeper local investor bases.
30 July 2026
EM debt resilience in recent market events
Less spread widening in risk off episodes than in the past
Past results are not a guide to future results.
As at 31 March 2026. Source: Bloomberg. EMBI spreads are represented by JPMorgan EMBI Global Diversified Sovereign Spread Index. Risk off episodes defined by International Monetary Fund World Economic Outlook, Kansas City Fed, and Capital Group
This resilience, however, is not uniform. Country-specific factors are increasingly driving outcomes across the asset class, with oil prices, domestic policy choices and external vulnerabilities creating wider dispersion between emerging markets. Oil exporters have generally benefited from higher prices through stronger fiscal and external balances, while oil importers have faced greater inflationary pressure and tighter policy constraints.
For investors, opportunities in emerging markets fixed income are becoming more selective. Local currency debt markets continue to offer potential in regions where high real yields, improving inflation and disciplined monetary policy provide support, particularly in parts of Latin America and Central and Eastern Europe. A weaker or more stable US dollar could provide an additional tailwind for local currency returns, although conditions remain less supportive in some Asian markets where lower yields and external pressures limit policy flexibility.
In hard currency emerging market debt, return dispersion remains wide. Some countries are supported by improving fundamentals and stable external balances, while others face refinancing risks, political uncertainty and weaker fiscal positions. Frontier and lower-rated issuers remain particularly exposed to tighter global financing conditions.
Overall, emerging markets debt continues to offer income and diversification potential, but portfolio construction is becoming increasingly important. In a more differentiated market environment, careful country selection and active risk management are essential as opportunities become less evenly distributed across emerging market debt markets.
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This insight is part of our broader analysis on how today’s global shifts are impacting investment opportunities – a dynamic we call The Great Global Restructuring.
Explore the forces driving the Great Global Restructuring
Robert Burgess is a fixed income portfolio manager and research director at Capital Group. He has 35 years of investment industry experience and has been with Capital Group for eight years. He holds a master’s degree in economics from the University of London and a bachelor’s degree in politics and economics from Oxford University. Robert is based in London.