Insights

Emerging Market Debt Market Commentary: July 2025

August 28, 2025

Emerging market (EM) debt commenced July against the backdrop of persisting trade tensions and the announcement of additional sector specific tariffs by the US Trump administration. Tariff negotiations between the US and some major EM economies continued in the midst of macro uncertainties and political gyrations. President Donald Trump announced that many EM economies will face higher trade tariffs from the start of August and, in some instances, more than what was initially announced in April. While such tariff headlines drove country-specific volatility in yields, especially in EM Asia, the broader market reaction was largely contained.

On July 27, the US announced a trade agreement with the European Union that will see 15% tariff imposed on European exports to the US. This, along with the reluctance of the Fed to lower US rates and broad demand for ‘safe haven’ assets helped the US dollar recover some of the decline recorded in the year to date, with negative consequences for EM local bond returns. Hard currency sovereign spreads in emerging markets were largely stable despite the headwinds from trade tariffs and uncertainties buffeting markets in July. Some modest tightening was evident, with investment grade and high yield spread components remaining well within long-term averages, aided by a combination of technical factors and idiosyncratic developments (Figure 1).

To learn more about what drove emerging market debt returns in July, please download the full commentary.

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