The most optimistic moment in 13 years! Emerging market bonds relative to U.S. Treasury risk premium hit a low

Global bond investors' confidence in emerging markets has reached its highest level in 13 years, with the risk premium of emerging market sovereign dollar bonds relative to U.S. Treasuries dropping to about 2.5 percentage points, the lowest level since January 2013. According to JP Morgan's risk premium indicator, the current spread has narrowed by nearly 5 percentage points compared to five years ago. This change reflects that, against the backdrop of debt restructuring, International Monetary Fund-supported fiscal reforms, and improvements in external balances, investors are flocking to the emerging market sovereign bond market. The improvement in emerging market fundamentals is attracting sustained capital inflows. Currently, developing economies are achieving an average current account surplus, while developed countries are experiencing deficits. It is expected that last year and this year, the economic growth rate of developing countries will be at least 2.4 percentage points higher than that of developed economies. Resonance of Fundamentals and Technicals Anders Faergemann, head of emerging market sovereign bonds at PineBridge in London, stated: “The fundamentals of emerging markets are generally strong, and we believe that technical factors favor risk, offsetting the historically narrow spreads. This is why we maintain a positive stance on this asset class.” The Bloomberg Emerging Market Sovereign Total Return Index has seen gains since the beginning of 2026, bringing investors over 13% returns last year. As more investors seek to diversify risks in the U.S. market, expectations of Federal Reserve rate cuts, and ample global liquidity, all support continued capital inflows into this sector. William Blair fund manager Luis Olguin pointed out: “We are currently in a sweet spot, with robust fundamentals, expectations of a soft economic landing, and prospects of Federal Reserve rate cuts continuously attracting funds into emerging market bonds. Although spreads have narrowed significantly, if the Federal Reserve continues to push for rate cuts, long-term emerging market assets may still achieve capital gains as yields decline.” Default Risk Premium Hits New Low As bond yields accelerate their recovery, traders have correspondingly lowered the credit default swap premiums used to hedge against emerging market debt default risks. The S&P Global Markit emerging market CDS premium has dropped to 124 basis points at the beginning of this year, the lowest level in eight years. The decline in this indicator reflects a significant easing of market concerns regarding sovereign defaults in emerging markets. The positive cycle between enhanced investor confidence and improved macro fundamentals further enhances the overall attractiveness of emerging market bonds