Capital Ideas^TM

Emerging market (EM) bonds are increasingly becoming a strategic holding for many investors but a key consideration in this is the different attributes of hard- and local currency-denominated bonds — the two broad sets of investments available in the asset class — and understanding the benefits each can bring to a portfolio. 

Geographic representation across local and dollar sovereign bonds

Data as at 29 February 2024. Local bonds refers to the JPMorgan GBI-EM Global Diversified Total Return index. Dollar bonds refers to the JPMorgan EMBI Global Diversified index. Source: JPMorgan

Hard currency bonds are a credit asset where risk-adjusted returns compare favourably with both high-yield and developed market investment-grade debt. Local currency bonds, on the other hand, can be an attractive investment for investors seeking to diversify their currency exposure and willing to accept the investment risks associated with monetary and fiscal policymaking in the developing world. Local bond investments provide access to an increasingly diverse set of countries whose interest rate cycles are largely uncorrelated and whose markets are supported by a growing local institutional investor base.

Overall, a research-based approach can help find value within both hard and local currency debt, particularly during volatile markets.