Will more asset owners consider emerging market debt?
State Street has described the current environment as a “Goldilocks” scenario for emerging market debt with the US dollar in a slump and the Federal Reserve expected to cut rates (Reuters/Ricardo Moraes)
The past year has been a good one for tech and US equity - this much we know.
But it has also been a strong year for some other asset classes including emerging market debt. The JPMorgan EM Global Diversified index is up more than 11 per cent so far in 2025.
The macro environment is fairly positive for EM debt, with the Federal Reserve expected to cut rates and the US dollar in a bit of a slump. There has also been plenty of domestic demand for local currency bonds.
So will we see more asset owners do what French insurer Abeille Assurance is looking to do: scope out managers in this sector?
The insurer, which has assets under management of around $108bn, has highlighted assets impacted by the EU changes to securitisation capital rules, which will lower solvency capital requirements from 2027.
Stanislas Goirand, CIO of Abeille, said: “These are areas that we will look at more closely in 2026, but there is a certain amount of preparation work for the governance and education aspects on these asset classes.
“We haven't yet made a decision, but it is an asset class with potential and an interesting risk-return profile.”
State Street has described the current environment as a “Goldilocks” scenario for EM debt: spreads are supported, Treasury yields are lower, and the US dollar remains weak. Meanwhile credit rating upgrades are outnumbering downgrades.
David Furey, global head of the fixed income, cash and currency portfolio strategists group at State Street, said this environment could run for “several quarters” and pointed out that US tariffs had actually reduced inflation in some countries.
He said: “Many countries have opted not to retaliate and, in some instances, have cut pre-existing levies on US products; in addition, the weak dollar also dampens the inflation effect.”