Investment opportunities in emerging market fixed income in the current environment
5 AUG, 2025
By Vontobel
Author: Carlos de Sousa, emerging markets fixed income manager at Vontobel
Emerging market credit spreads have tightened again as this asset class recovered from the volatility triggered by the "liberation day" in early April. However, there are still pockets of value in the asset class, creating attractive entry points for selective credit strategies.
Oil exporting countries and emerging market oil companies have not fully recovered, as the outlook for oil prices is not very encouraging. But countries like Angola have large foreign exchange reserves that can allow the country to stay out of the capital markets for a prolonged period if necessary, or they could get an IMF program if market access is not restored in time. Oil companies with relatively modest breakeven costs and low leverage compared to their competitors also offer good value in a context of relative pessimism about oil.
We also find value in more defensive investment grade bonds, such as supranational bonds, especially in African development institutions. Some investment grade countries, like Bulgaria, which will join the euro in January 2026, also offer good value for a defensive play in a context of tightening spreads in investment grade.
We believe there may be some volatility in the markets in the coming weeks as the US tariff deadline (August 7) approaches, which leads us to be relatively cautious from a tactical point of view. But, in general, we expect most emerging markets to reach agreements with the US with significantly lower tariff rates than those threatened in the original reciprocal tariffs or in the latest letters sent by the Trump administration to several countries earlier this month.
