TREE NEWS reports: Emerging-market investors are favoring local-currency sovereign bonds over dollar-denominated debt as surging US Treasury yields erode the appeal of hard-currency notes. The shift is driven by attractive valuations and the potential for carry-trade returns, where investors borrow in low-yielding currencies to buy higher-yielding assets. Since the end of June, the Bloomberg EM local-currency bond index has outperformed its dollar-denominated counterpart by more than 3 percentage points, on track for its largest quarterly lead since 2022.
EM Local-Currency Bonds Outperform Dollar Debt by 3 Points as US Yields Surge
AI take
The divergence matters less as a valuation call than as a signal about where EM risk is being priced: local-currency debt embeds domestic rate and inflation paths, while dollar debt is hostage to the US curve. That the local index is posting its widest quarterly lead since 2022 suggests carry is doing the work, which makes the trade sensitive to any renewed move in US yields or a stronger dollar. Whether that leadership holds once the carry unwind starts is the open question.
Generated by AI for reference only.
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