Emerging market debt Market commentary: October 2026
Chart of the month: Longer-dated EM hard currency bonds lead
US Treasury yields fell sharply in October, with the 10-year yield down 36 bps to 4.93%, and this rally rewarded duration across the JP Morgan EMBI Global Diversified Index. Longer-dated issues, being more sensitive to benchmark rates, captured the largest gains from the Treasury rally. Sovereign spreads, however, widened as escalating geopolitical tensions and country-specific stress in lower-rated sovereigns dampened risk appetite. Spread widening detracted across every segment, most notably the 5-to-7-year bucket.
EMD returns diverge on lower US yields and a firmer dollar
Emerging market debt delivered divergent returns in October. A sharp rally in US Treasuries supported hard currency bonds, while a firmer US dollar weighed on local currency debt. The 10-year US yield peaked above 5.3% early in the month, before falling back to close at 4.93% as doubts over returns on AI investment drove investors toward safer assets. Lower-rated sovereigns lagged as spreads widened, extending the underperformance that began in September. In EM local markets, yields were broadly stable, but currencies came under pressure as the US dollar edged higher. A firmer-than-expected US core inflation reading raised expectations of further tightening from the US Federal Reserve (Fed). In Europe, political and fiscal strains pushed French 10-year yields above 5% for the first time since 2002. The spread over German bonds widened to its highest since 2011, keeping the euro near its 2026 lows. Euro weakness spilled over into Central and Eastern European currencies, notably the Czech koruna, Hungarian forint, Polish zloty, and Romanian leu.
Geopolitics remained a persistent source of risk. Attacks on commercial shipping in the Strait of Hormuz reached their highest level since the US–Iran conflict began, pushing Brent above USD 117 per barrel. Iran declared the strait closed to unauthorized vessels on 29 October. Houthi strikes on Saudi energy infrastructure added to regional tensions, while a sharp deterioration in US–Ukraine relations weighed on Ukrainian assets. Domestic politics also drove dispersion across EM. In Brazil, President Lula's bigger-than-expected victory in the election runoff prompted sharp moves in local markets. In Serbia, the student-led opposition ended 14 years of rule by Aleksandar Vučić's party. In Israel, the 27 October election left neither the governing parties nor the opposition bloc with a majority, and coalition talks were unresolved. In Indonesia, the rupiah weakened after MSCI opened a consultation on reclassifying the country's equity market from Emerging to Standalone status.
The US Federal Reserve (Fed) held its fed funds target rate range at 3.75–4.00% on 28 October, although two members dissented in favor of a 25 bps hike. EM central banks leaned more hawkish, as higher energy prices and tighter global financial conditions narrowed the room to ease. In EM Asia, the Reserve Bank of India raised its policy rate by 25 bps to 5.50% and shifted its stance to calibrated tightening. The Philippines went further, with a 50 bps hike to 5.50%. The People's Bank of China kept its key lending rates unchanged at record lows for the 17th consecutive month, while the yuan continued to strengthen. Elsewhere, policy paths diverged. Turkey's central bank announced a 100 bps cut to 36%, while in Latin America (LatAm), Chile, Peru, and Colombia kept rates unchanged at 4.50%, 4.25%, and 12.25%, respectively.
Despite the volatile backdrop, EM primary markets remained open, including for frontier issuers. Fiscal considerations remained part of the EM backdrop, as elevated global borrowing costs kept attention on sovereign financing conditions. Against this backdrop, EM hard currency debt delivered positive returns, as the Treasury rally more than offset negative spread returns. Local currency debt declined, as currency weakness outweighed carry returns. Investor flows were mixed in October, with hard currency bonds recording net outflows of USD 1.9 billion, while local currency bonds attracted net inflows of USD 0.9 billion (Source: JP Morgan).
Figure 2: Emerging Market Debt Index Returns
| 1m | 3m | 6m | YTD | 12m | 3yrs | 5yrs | |
| In USD | |||||||
| GBI-EM GD (EM Local Currency) | -0.72% | -1.95% | -0.63% | -0.17% | 2.69% | 8.09% | 2.70% |
| EMBI GD (EM Hard Currency) | 1.35% | -1.15% | -0.88% | 0.67% | 1.81% | 10.70% | 2.19% |
| CEMBI BD (EM Corporates) | 0.52% | -0.84% | -0.53% | 0.86% | 1.59% | 8.03% | 2.44% |
| In EUR | |||||||
| GBI-EM GD (EM Local Currency) | 1.02% | 1.05% | 4.43% | 5.03% | 6.18% | 6.14% | 3.45% |
| EMBI GD (EM Hard Currency) | 3.13% | 1.88% | 4.16% | 5.91% | 5.27% | 8.70% | 2.93% |
| CEMBI BD (EM Corporates) | 2.28% | 2.20% | 4.53% | 6.12% | 5.04% | 6.08% | 3.18% |
| In GBP | |||||||
| GBI-EM GD (EM Local Currency) | -1.55% | -1.51% | 0.80% | 0.24% | 0.71% | 4.58% | 3.18% |
| EMBI GD (EM Hard Currency) | 0.51% | -0.70% | 0.54% | 1.08% | -0.15% | 7.11% | 2.66% |
| CEMBI BD (EM Corporates) | -0.32% | -0.39% | 0.89% | 1.27% | -0.37% | 4.53% | 2.91% |
Sources: State Street Investment Management, Bloomberg, JP Morgan as of 30 October 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Performance returns for periods of less than one year are not annualized.
Figure 3: Key EM and Macro Moves in October
| Item | 1 month | 3 months | YTD | Current Level |
| GBI-EM GD Yield | 3 bps | 30 bps | 69 bps | 6.56% |
| EMBI GD Yield | -14 bps | -17 bps | 29 bps | 7.10% |
| EMBI GD Spread | 21 bps | -36 bps | -46 bps | 208 bps |
| CEMBI BD Yield | -3 bps | 20 bps | 57 bps | 6.94% |
| CEMBI BD Spread | 33 bps | 36 bps | 16 bps | 204 |
| CDX.EM 5y | 9 bps | 24 bps | 44 bps | 169 bps |
| 10y UST | -36 bps | 1 bps | 76 bps | 4.93% |
| Dollar Index (DXY) | 0.42% | 1.97% | 3.62% | |
| DOW 30 | 1.70% | -1.36% | 7.71% | 51770 |
| Oil (WTI) | 15.15% | 22.97% | 81.33% | $104.12 |
Source: JP Morgan, Bloomberg as of 30 October 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.
Local currency market highlights
EM local currency debt returned -0.72% (in USD terms) in October 2026, as measured by the JP Morgan GBI-EM Global Diversified Index. The foreign exchange (FX) component was the main detractor (-1.20%), as a firmer US dollar weighed on most EM currencies, with only 5 of the 21 currencies in the benchmark gaining against the dollar. The US dollar index rose over the month, supported by a firmer-than-expected US core inflation reading that lifted expectations of further Fed tightening. Currency weakness was most pronounced in LatAm, amid post-election volatility in Brazil and broader risk aversion. The treasury component, which includes combined price and interest rate returns, contributed positively this month. In terms of local curves, carry remained supportive through interest income (+0.51%), which more than offset marginal price losses (-0.03%) as local yields were broadly stable. The overall GBI-EM GD Index yield increased by 3 bps in October.
Figure 4: Key return drivers of EM local government bond markets
| GBI-EM GD (EM Local Currency) | Monthly Return | 3 Month Return | YTD Return |
| In USD | |||
| Total Return (in $) | -0.72% | -1.95% | -0.17% |
| FX Return (vs $) | -1.20% | -2.32% | -2.87% |
| Price Return (Local currency) | -0.03% | -1.10% | -2.19% |
| Interest Return (Local currency) | 0.51% | 1.47% | 4.89% |
| In EUR | |||
| Total Return (in €) | 1.02% | 1.05% | 5.03% |
| FX Return (vs €) | 0.54% | 0.69% | 2.33% |
| In GBP | |||
| Total Return (in £) | -1.55% | -1.51% | 0.24% |
| FX Return (vs £) | -2.03% | -1.87% | -2.46% |
Sources: State Street Investment Management, Bloomberg, JP Morgan as of 30 October 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Performance returns for periods of less than one year are not annualized.
Figure 5: Best and worst performers across EM local government bond markets in USD
| October 2026 | Country | Total Return USD (%) | Bond Return (%) | FX Return (%) | Index Weight | Index Impact (bps)* |
| GBI-EM GD | -0.72 | 0.48 | -1.20 | |||
| Top 5 Performers | Colombia | 4.1 | 0.7 | 3.4 | 5.1% | 21 |
| Malaysia | 1.3 | 0.8 | 0.6 | 9.4% | 13 | |
| Turkey | 1.2 | 3.1 | -1.9 | 1.3% | 2 | |
| China | 1.0 | 0.3 | 0.7 | 10.0% | 10 | |
| Thailand | 1.0 | 1.4 | -0.4 | 7.8% | 8 | |
| Bottom 5 Performers | Mexico | -1.7 | 2.7 | -4.4 | 10.0% | -17 |
| Poland | -1.8 | 0.8 | -2.7 | 8.3% | -15 | |
| Dominician Republic | -3.6 | -1.9 | -1.7 | 0.2% | -1 | |
| Indonesia | -3.6 | -2.3 | -1.3 | 8.6% | -31 | |
| Paraguay | -4.8 | -2.4 | -2.4 | 0.1% | 0 |
Source: State Street Investment Management, JP Morgan, Bloomberg as of 30 October 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Country and currency performance of JPM GBI-EM Global Diversified Index. *Index impact is calculated by multiplying the period ending weight by total return.
Paraguay was the worst performer in October, with losses split evenly between local bonds and the currency. The Central Bank of Paraguay held its policy rate at 5.50% in October and raised its 2026 GDP growth forecast to 5.0% from 4.5%, as September inflation remained subdued at 1.7%. Even so, a benign domestic backdrop did not shield local assets from regional risk aversion. The Paraguayan guaraní depreciated against the US dollar by around 1.46% in October and closed at 5,919.90.
Indonesia was the largest detractor from index returns. Bank Indonesia held its policy rate at 5.75% in October, although it raised its deposit facility rate by 25 bps to 5.00% to support the currency and lowered banks' reserve requirements. The rupiah came under pressure after MSCI opened a consultation on reclassifying Indonesia's equity market from Emerging to Standalone status, which raised concerns over potential foreign outflows. The Indonesian rupiah depreciated against the US dollar by around 1.44% in October and closed at 18,127.
Poland was among the underperformers, as currency weakness more than offset positive local bond returns. The National Bank of Poland held its reference rate at 3.75% in October. Inflation rose to 4.0% in September, above the upper limit of the central bank's target range, on higher fuel prices. The zloty tracked the euro lower amid fiscal strains in France, and the central bank said it may intervene in the foreign exchange market. The Polish zloty depreciated against the US dollar by around 2.46% in October and closed at 3.95.
Colombia was the best performer in October, as a sharp currency rally was complemented by modest gains in local bonds. The peso strengthened early in the month, after Banco de la República's 25 bps hike to 12.25% in late September and the government's announcement of a fiscal rescue package. The central bank then held its policy rate at 12.25% in October, acknowledging that September inflation had edged up to 6.3% and that public finances would be a key factor in future policy decisions. The Colombian peso appreciated against the US dollar by around 3.45% in October and closed at 3,194.92.
Malaysia was another good performer in October, with balanced gains from local bonds and a firmer currency. Malaysia’s federal government tabled Budget 2027 in October, targeting a narrower fiscal deficit of 3.3% of GDP, from a revised 3.6% in 2026, reinforcing its commitment to fiscal consolidation. Benign inflation, which eased to 1.8% in September, and resilient third-quarter growth of 5.3% continued to support demand for local debt. The Malaysian ringgit appreciated against the US dollar by around 0.53% in October and closed at 4.06.
Hard currency market highlights
EM hard currency sovereign debt returned +1.35% (in USD terms) in October 2026, as measured by the JP Morgan EMBI Global Diversified Index, recovering part of September's rates-driven losses. The Treasury component was the principal driver (+2.50%), as the rally in US Treasuries pulled the index yield 14 bps lower to 7.10%. The spread component detracted (-1.12%), with the EMBI GD spread widening by 21 bps to around 208 bps as escalating geopolitical tensions and country-specific stress among lower-rated sovereigns weighed on risk appetite. Even so, the rally in rates outweighed wider spreads, and returns were positive across most of the index, with 54 of 70 constituents gaining. The investment grade sub-index (+2.17%) outperformed high yield counterpart (+0.63%), reflecting its longer duration and greater sensitivity to benchmark rates.
Figure 6: Key return drivers of EM hard currency government bond markets in USD
| EMBI GD (EM Hard Currency) | Monthly Return | 3 Month Return | YTD Return |
| Total Return | 1.35% | -1.15% | 0.67% |
| Spread Return | -1.12% | -1.06% | 1.82% |
| Treasury Return | 2.50% | -0.09% | -1.13% |
| IG Sub-Index | 2.17% | -0.45% | -1.33% |
| HY Sub-Index | 0.63% | -1.78% | 2.61% |
Sources: State Street Investment Management, Bloomberg, JP Morgan as of 30 October 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Performance returns for periods of less than one year are not annualized.
Figure 7: Best and worst performers across EM hard currency government bond markets*
| October 2026 | Country | Total Return (%) | Spread Return (%) | Treasury Return (%) | Average Index Weight | Index Impact (bps)* |
| EMBI Global Diversified | 1.35 | -1.12 | 2.50 | |||
| Top 5 Performers | South Africa | 3.3 | 0.7 | 2.7 | 2.8% | 9 |
| Panama | 3.3 | 0.2 | 3.1 | 2.7% | 9 | |
| Uruguay | 3.1 | -0.2 | 3.3 | 2.2% | 7 | |
| Chile | 2.8 | -0.4 | 3.3 | 3.0% | 9 | |
| Peru | 2.8 | -0.6 | 3.4 | 2.5% | 7 | |
| Bottom 5 Performers | Republic of Congo | -1.7 | -3.7 | 2.1 | 0.2% | 0 |
| Ecuador | -1.8 | -4.1 | 2.4 | 1.7% | -3 | |
| Cameroon | -2.6 | -3.6 | 1.0 | 0.2% | -1 | |
| Argentina | -4.7 | -6.5 | 1.9 | 2.5% | -12 | |
| Lebanon | -9.2 | -10.4 | 1.4 | 0.6% | -5 | |
Source: State Street Investment Management, JP Morgan, Bloomberg as of 30 October 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Country and currency performance of JPM EMBI Global Diversified Index *Index impact is calculated by multiplying the period ending weight by total return.
South Africa performed well in October, contributing 9 bps to the index return. Its USD bonds benefited both from the rally in US Treasuries and from tighter spreads, the only top performer with a meaningful positive spread return. Sentiment was supported by Moody's comment on 14 October that South Africa was on track for a possible rating upgrade if fiscal gains continue. The Medium-Term Budget Policy Statement on 21 October reinforced this, as rising primary surpluses and a declining debt ratio pointed to continued fiscal consolidation.
Panama also outperformed, contributing 9 bps to the index return. As a longer-duration issuer whose bonds are highly sensitive to US benchmark rates, its returns came almost entirely from the Treasury component, while spreads were broadly stable. Investor confidence was underpinned by S&P's affirmation of Panama's 'BBB-' investment grade rating with a stable outlook in late September, which recognized the government's progress in reducing the fiscal deficit.
Chile was another good performer, contributing 9 bps to the index return. Duration was again the main driver. Moody's affirmed Chile's A2 rating with a stable outlook in October. Meanwhile, Fitch noted that a copper-driven revenue windfall had allowed the Kast administration to ease previously pledged spending cuts in its 2027 budget, with the deficit expected to hold at 1.8% of GDP.
Argentina was among the underperformers in October, detracting 12 bps from the index return. Its USD bonds sold off as the country risk premium rose sharply to hit 790 bps on 30 October, its highest level in a year. Lula's unexpected victory in Brazil's 25 October runoff, a global sell-off in technology stocks, and concerns over the 2027 financing program ahead of next year's election all weighed on sentiment. These pressures outweighed a staff-level agreement with the International Monetary Fund (IMF) on the third program review and central bank purchases of around USD 1.4 billion, which lifted reserves.
Lebanon was another poor performer in October, detracting 5 bps from the index return. Its defaulted Eurobonds gave back their late-September rally, which had been driven by signals that an IMF staff-level agreement was near. Sentiment weakened further after the Constitutional Council struck down a key article of the amended bank restructuring law on 20 October. The ruling sent the law back to Parliament and delayed progress toward IMF financing. Security tensions in southern Lebanon and broader geopolitical risk also weighed on recovery-value expectations.
We published an updated EMD outlook in October. To discover what the prospects are for emerging markets debt, please read Emerging markets: Inflation, central banks, and near-term debt outlook