Foreign Bonds: US Dollar Gains
- are showing strong performance, with emerging market local currency debt leading the charge.
- Foreign corporate bonds are outpacing other fixed-income sectors internationally in 2025.
- A meaningful factor driving these returns is the weakening U.S.
Emerging market bonds are surging, driven by a weakening U.S. dollar and shifts in global trade, according to recent market data. Foreign corporate bonds are substantially outperforming their U.S. counterparts, fueled by a declining dollar, bolstering the value of international assets. This evolving scenario signals a potential surge in interest for emerging market investments.The trend is further fueled by a shift towards global diversification, with investors reducing their exposure to U.S. dollar-denominated assets amidst ongoing trade tensions. Analysts predict continued growth in this sector News Directory 3 is following these developments closely,and it further underscores the renewed appeal of emerging market local currency debt as investors re-evaluate their strategies. Discover what’s next as these trends reshape the investment landscape.
Emerging Markets Lead Bond gains Amid Dollar Weakness, Trade Shifts
Updated June 28, 2025
Bond markets outside the U.S. are showing strong performance, with emerging market local currency debt leading the charge. This trend is evident through Wednesday’s close, June 25, based on ETF data.
Foreign corporate bonds are outpacing other fixed-income sectors internationally in 2025. The Invesco International Corporate Bond ETF is up 12.7% year-to-date. This contrasts sharply with the more modest gains of 3.8% for U.S. corporate bonds and 3.6% for the U.S. investment-grade government/corporate benchmark.
A meaningful factor driving these returns is the weakening U.S. dollar. The dollar has fallen 8.0% this year,based on an ETF proxy. A weaker dollar typically boosts the value of foreign assets priced in other currencies when translated back into U.S. dollar terms, providing a tailwind for international investments.
The ongoing trade war is also contributing to the strength of offshore bond prices.Increased U.S. tariffs have spurred renewed interest in strategies that prioritize global diversification and reduce exposure to U.S. dollar-denominated assets. This shift in investment strategy is benefiting emerging markets.
damien Buchet, chief investment officer of Principal Finisterre, noted the renewed appeal of emerging market local currency debt. In an interview, Kevin Daly, co-head of CEEMEA economics at Goldman Sachs, observed that emerging market local currency assets had been underinvested for several years, leading to disproportionately large effects from even small inflows.
“Suddenly, it makes emerging market local currency debt great again,” said Damien Buchet, chief investment officer of Principal Finisterre.
“Emerging market local currency assets had been underinvested for a number of years,” said Kevin Daly,co-head of CEEMEA economics at Goldman Sachs.”Even small inflows are having arguably disproportionately large effects.”
These inflows are supporting the VanEck JP Morgan EM Local Currency Bond ETF,which closed Wednesday at a four-year high.
According to a new report from investment consultancy bfinance, global economic shifts, including a weaker U.S. dollar and evolving trade dynamics, favor the outlook for local currency emerging market debt. Investors are re-evaluating their approach to this asset class.
“Today, the profound macroeconomic shifts reshaping global capital markets – including the changing role of the US and the US dollar in the geopolitical and economic world order – are prompting investors to re-examine their approach to the asset class, whether this stems from an impetus to re-evaluate the overall size of the allocation or the types of strategies used to provide exposure.”
what’s next
Looking ahead, analysts anticipate continued interest in emerging market local currency debt as investors seek diversification and hedge against potential dollar weakness. The evolving global trade landscape will likely further influence investment strategies in the coming months.