Global Fixed Income Strategy - March 2026
Global macro strategy
Dollar weakness and opportunities in EM
Executive summary
• A weaker or stable US dollar and improving EM macro fundamentals create a supportive backdrop for EM debt performance. Many countries benefit from credible monetary frameworks, moderating inflation, and stronger external balances.
• Local currency EM debt offers the most attractive medium-term opportunity, in our view, combining high real yields, potential currency appreciation, and policy-driven tailwinds—though with higher currency-related volatility. Hard currency EM debt remains more income-oriented, in our view, with limited spread-compression upside.
• Wide dispersion across countries reinforces the value of active management to navigate diverse economic structures, fiscal positions, policy credibility, and idiosyncratic risks across more than 70 sovereign issuers.
Emerging market (EM) debt has re-entered investor discussions on the back of strong performance. The question now is whether that performance can be sustained. We believe continued strong performance rests on two conditions: a plausible case for a stable to weaker US dollar that supports inflows into the asset class and a mix of steady growth and inflation across EM that supports policy flexibility.
We believe these two conditions are likely to be met in the medium term. With these conditions in place, we believe there is strong potential for EM debt—particularly local markets—to provide investors with robust, diversified sources of return.
US dollar weakness plays a key role
The US dollar is often the most important macro variable in EM debt returns because it influences both financial conditions and investor behavior. A weaker dollar tends to support EM currencies and the balance sheets of sovereigns with external liabilities. It can also encourage investors to diversify away from US assets and toward non-US opportunities, including EM, especially when valuations and yields appear more compelling. History shows that dollar cycles can persist for years, driven by differentials in growth and interest rates, and shifts in global risk appetite. If the strong dollar headwind that challenged EM assets from 2022-24 continues to dissipate, we would expect a more favorable backdrop for EM debt—especially for local currency bonds.
EM macro strength
Improved macro fundamentals are the second part of the EM debt argument. Many emerging economies now boast more credible monetary frameworks than in prior decades, and some entered the recent global inflation shock having already tightened policy early and decisively. As inflation pressures have moderated following the 2022 spike, policymakers have been able to stimulate a growth boom rather than purely defending currency stability.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Non-investment grade bonds, also called high yield bonds or junk bonds, pay higher yields but also carry more risk and a lower credit rating than an investment grade bond.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
