Emerging-market bond flows are back, but investors are being selective

Emerging-market debt is back in fashion. But investors are discriminating between countries – reflecting the asymmetric effects of shocks ranging from AI to the Hormuz crisis. Currency performance and yield spreads are factors, too.

EM bond funds tracked by EPFR ended 2025 with record inflows. And for 1H 2026, our country-level data show foreign-domiciled bond funds added exposure across all of our selected markets. Commodity-exporting Brazil led at 7.9% of assets under management, while India recorded just 0.7%. China was in between.

China also shows how positive flows do not necessarily imply equally strong positioning by active managers. In June, active bond funds held substantially less China exposure than their passive peers across comparable fund universes.

Higher 10-year local-currency yield spreads over US Treasuries generally coincided with stronger foreign-domiciled bond-fund flows. Brazil fits that carry story well. Yet China still attracted positive flows despite a negative yield spread, while India offered a positive spread but received relatively few flows.