The renewed interest in emerging markets has come about due to the strength of the creditworthiness of the countries concerned.
Emerging Market Debt Real Yields Are Near 15-Year Highs
We feel that this is a great opportunity to engage with emerging market debt because the real rates are currently at the 15-year high in its own history.
As you can see on this chart, the upper line is showing the real interest rates in emerging markets. The other two lines are the real interest rates in Europe and in the U.S. You can see you get an excess premium in emerging markets. But also, over the last 15 years, we’re very much close to the highs it’s been over this timespan.
The Investor Opportunity in Local Currency
We have a preference for local currency, and it has a lot to do with the fact that credit risk premiums have come in quite meaningfully over the recent years, post-2023.
That has left limited risk compensation on the table for people that invest in the credit side of things, i.e., in the dollar debt. But as opposed to that, if you look at local currency, you get very high nominal and real yields especially that do compensate you for the risks involved.
Reform Momentum Translates to Credit Rating Improvements
How durable is the flow picture coming back to emerging market debt? We would note that emerging market debt has had a rough couple of years. If you go back in time, we’ve had a default cycle across a number of countries, but the countries have put their house in order at large.
As you can see on this chart, you see the calendar years of outflows that have been happening over the last five years.
However, in 2025, it started to reverse and increase, and become positive again, as we can see in 2026 as well. And there is a good reason for this: The renewed interest in emerging markets has come about due to the strength of the creditworthiness of the countries concerned.
And there’s a strong reform momentum that is translating into credit rating improvements. So you’ll see a lot of upgrades over downgrades.
I would also mention in that context that there’s an increasing need to diversify away from concentration risks that you typically find in AI or in the U.S. and in the U.S. dollar.
Diversification Benefits of Emerging Market Debt
Why does this asset class deserve the attention of investors? There are two prominent arguments to favor investing in emerging market debt. One is the improving story of the countries concerned.
But also the corporates concerned in this universe that are delivering and improving their resilience and getting credit rating upgrades.
Secondly, the diversification argument away from AI and the U.S. dollar.
Decision Points is a video series that looks at the data driving fixed income markets. Bringing together views across Neuberger’s Fixed Income team, these perspectives offer a closer look at the opportunity set across public and private markets.
Following several years of outflows, emerging market debt saw net inflows in 2025, a trend that has continued into 2026. In episode 5 of Decision Points, Rob Drijkoningen, Head of Fixed Income Europe & Global Co-Head of Emerging Markets Debt, considers what could sustain the turnaround and why he favors local currency debt. He also discusses the asset class’s potential to diversify portfolios with concentrated U.S. exposures.
Three key takeaways
- Emerging market real yields are near 15-year highs. Rob favors local currency debt, where he sees high nominal and real yields and attractive compensation for risk relative to U.S. dollar-denominated emerging market credit.
- Improving creditworthiness and reforms across emerging markets are contributing to credit rating upgrades, helping support investor interest.
- Emerging market debt may offer diversification for investors looking to reduce concentrated exposures to U.S. assets, including the U.S. dollar.
