2026 Market View: Emerging Market Debt

Dec 04, 2025

Polina Kurdyavko, Head of BlueBay Emerging Markets and BlueBay Senior Portfolio Manager, summarises the market in 2025 for the asset class, and gives her thoughts for 2026.

  • 2025 delivered strong emerging market fixed income returns, with hard currency sovereign debt yielding mid-teens and local currency sovereign debt delivering high-teens returns, driven by both rates and FX components.
  • Local currency debt (90% of EM issuance, comparable in size to the US Treasury market) offers high real yields and attractive valuations, supporting debt sustainability and investor opportunities in 2026.
  • Geopolitical alliances are likely to continue to play out, Latin America for example benefits from U.S. strategic support under the Trump administration, with potential market-friendly leadership shifts in 2026 elections amplifying positive momentum.
  • Default rates are expected to remain below 1%, while corporate defaults stay in mid-single digits, underpinned by low EM debt leverage, improving fiscal deficits, and rising ESG-linked issuance.
  • Emerging markets offer diversified, low-correlation alpha sources in 2026, encouraging investors to adopt targeted strategies rather than broad asset-class allocations.


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