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Emerging Market Debt Market Commentary: October 2025

Overall, emerging market debt enjoyed a positive month, benefiting from robust investor appetite, resilient growth data, and dovish global monetary conditions. EM local currency bonds posted positive returns, supported by benign inflation, market expectations of lower interest rates, and subdued oil prices. EM hard currency debt also gained, benefiting from the compression in sovereign spreads and some idiosyncratic developments in the high yield countries.

26 November 2025

Trade tensions remained a factor though, with India and Brazil still facing cumulative tariffs of up to 50%, encouraging both countries to accelerate export diversification strategies. Meanwhile, the US-China trade truce provided some relief to global supply chains and the consequent repricing in term premiums. President Trump’s visit to the Association of Southeast Asian Nations (ASEAN) summit in October resulted in agreement on US trade deals with Malaysia, Thailand, Vietnam, and Cambodia. However, geopolitical risks stemming from the Middle East remained a latent source of volatility in yields, especially in the high yielding EM currencies. In October, Israel and Hamas agreed to a US-convened ceasefire, halting two years of war, although violence flared later in the month. For EM economies, lower oil prices eased inflationary pressures and improved trade balances for importers like India and Thailand. Conversely, oil-exporting nations in the Gulf accelerated borrowing to offset revenue shortfalls, contributing to record EM debt issuance.

The US Federal Reserve delivered its second consecutive 25 bps rate cut, lowering the federal funds target range to 3.75%–4.00%. The Fed’s easing supported risk sentiment and drove spread compression in EM hard currency bonds to multi-year lows. With the Fed’s pivot, markets factored in more flexibility for EM central banks to maintain accommodative stances, while investors rotated into higher-yielding EM assets. However, Fed Chair Jerome Powell’s hawkish tone introduced caution, tempering expectations for an aggressive loosening of Fed monetary policy and leaving EM markets sensitive to US data surprises.

To learn more about what drove emerging market debt returns in October 2025.

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Looking forward, rate cuts, a weak US dollar, and robust EM fundamentals set the stage for potential return opportunities in emerging market debt. Find out why we’re optimistic about the months ahead in our EMD Outlook.

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