EM Bonds Looking Like Fixed Income Stars

Core Insights - The Federal Reserve is expected to begin its monetary easing program, prompting a focus on Treasuries and domestic debt, but opportunities exist outside the U.S. borders [1] Group 1: Emerging Markets Debt - Emerging markets debt is highlighted as a compelling investment opportunity for 2025, accessible through ETFs like the Neuberger Berman Emerging Markets Debt Hard Currency ETF (NEMD) [2] - NEMD has transitioned from a 12-year open-end mutual fund to an ETF, benefiting from favorable conditions for emerging markets bonds, including a weak U.S. dollar [3] Group 2: U.S. Dollar and Interest Rates - The U.S. dollar is anticipated to resume a cyclical downturn, influenced by structural pressures such as high real effective exchange rate valuations and large twin deficits [4] - Current conditions favor emerging markets debt, particularly local currency debt, as higher rates and a stronger dollar typically increase financing costs for issuers in developing countries [5][6] Group 3: Investment Returns - Emerging markets local debt is projected to yield returns above 11% over the next 12 months, driven by high-yielding government bonds from countries like Brazil, Mexico, South Africa, Hungary, India, Turkey, and Egypt [7] - Mexico and South Africa are significant geographic exposures within the NEMD portfolio [8]