Emerging Market Bonds Surge as U.S. Treasurys Lose Safe-Haven Status Amid Trump’s Tariffs
In the wake of U.S. President Donald Trump’s announcement of new tariffs, investors are increasingly turning to emerging market local currency bonds as an alternative to U.S. Treasurys. Historically considered a safe haven, U.S. Treasurys have faced a significant sell-off since early April 2025, prompting a shift in investment strategies. As a result, emerging markets have seen a rise in bond demand, with a notable inflow of $2.4 billion into local currency bonds between April 2 and 25.
Experts such as Brandywine Global’s Carol Lye highlight that countries like Mexico, Brazil, and South Africa are seeing increased interest from global investors, driven by the high real yields offered by emerging market bonds. These bonds, priced in domestic currencies, also lead to a boost in demand for the local currencies, which benefits from the shift away from the U.S. dollar. As Lye notes, the premium yields combined with favorable currency shifts make emerging markets an attractive investment.
Mark Mobius of Mobius Emerging Opportunities Fund suggests that local investors in emerging markets are looking to diversify away from U.S. Treasurys, thus accelerating this trend. Though there has been a broader search for safe-haven assets such as Euro and Japanese government bonds, the emerging markets’ local currency bonds are increasingly favored due to their higher returns and stronger fiscal buffers.
Contrary to the previous narrative that emerging markets would falter amid potential U.S. recession concerns, many markets are proving resilient. Lye believes that these markets have sufficient fiscal space and buffers to weather economic slowdowns, challenging previous expectations that they would be vulnerable in such conditions. Additionally, when the U.S. dollar weakens, emerging market local currency bonds typically perform better than their developed-market counterparts.
Investment professionals like Paul Benson from Insight Investment and Viktor Szabó from Aberdeen Investments are noting a shift in how U.S. investors view emerging market assets. The underperformance of traditional U.S. safe havens, such as Treasurys and the greenback, has spurred interest in global opportunities. This marks a significant change in asset allocation strategies, as investors reconsider their positions in the wake of shifting global dynamics, with some even rotating out of long-dated U.S. Treasurys into shorter-duration bonds.
Source: CNBC