The emerging market debt (EMD) asset class has expanded dramatically over the past 30 years, when it consisted of a small set of countries in Asia, EMEA and Latin America. At the inception of JP Morgan’s sovereign index in 1995, there were eight countries with USD government bonds included. The investible universe now consists of 109 countries with bonds issued in hard and local currency by governments, quasi governments and corporates. On the macro front, some emerging markets, including the UAE, South Korea and Chile have now grown so much such that their size, economic stability, quality of institutions and depth of financial markets are close to levels seen in G10 countries.
Meanwhile, the investible universe of EM fixed income has more than doubled in size in last 10 years, reaching around $29 trillion by the end of 2024. This growth has been driven by a widening range of issuers (sovereigns and corporates) across dozens of emerging countries becoming integrated into global capital markets. Additionally, more EM countries have seen foreign investors participating in their local market instruments, with new frontier local markets growth being notable in the last years of the post-global financial crisis expansion. Indeed, index providers have now developed frontier market specific indices, including for local markets.
Investors are increasingly drawn by the diversification and yield premium EMD can offer. EM bonds on average carry higher yields (often 6-8% or more) than comparable developed-market bonds, yet the overall credit quality of the asset class is investment-grade on average.
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