Emerging Markets Outlook and Strategy for September 2025
At a Glance
The desk interprets emerging market (EM) fixed income as on the brink of a pivotal shift, driven by the evolving macroeconomic landscape and monetary policy anticipations. Per the full note from JPMorgan, analysts Goulden, Christovova, and Szentivanyi highlight a complex interplay of geopolitical tensions and domestic financial stability concerns weighing on investor sentiment. As total EM bond issuance has decreased by 15% year-to-date, market liquidity conditions continue to tighten, prompting cautious positioning across the EM spectrum. This caution is underscored by the shifting dovish rhetoric from US Federal Reserve officials regarding the potential pace of interest rate hikes, which could further influence capital flows into EM assets.
Key Takeaways
- 01Emerging market fixed income leaning toward attractive valuations as global conditions shift.
- 02Central banks, particularly the U.S. Fed, hinting at dovish policy moves, positively impacting EM sentiment.
- 03Dwindling EM bond issuance contributing to tighter market liquidity, warranting closer trader scrutiny.
- 04Geopolitical developments remain a wildcard affecting potential inflows into the asset class.
Full Analysis
What the desk is arguing
The desk posits that EM fixed income is becoming increasingly attractive as bond yields adjust to global inflationary pressures while central banks signal a softer monetary stance. This thesis emerges from insights gathered by JPMorgan's analysts, indicating that current prices reflect increased risk premiums due to geopolitical uncertainty.
The data suggests significant changes, with bond spreads over US Treasuries now at 295 basis points, a level not seen since early 2023. Additionally, strong capital inflows into EM debt instruments were observed, especially from US investors, reflecting a renewed interest in higher-yielding assets amid stabilizing inflation data from major economies.
Where it sits in our coverage
firmId targets for Dec-26 reveal an interesting range, with J.P. Morgan forecasting 1.10, BofA at 1.04, while others are concerned about a downside risk near 1.05.
This perspective signals a potential alignment with the targets set by jpmorgan, as it stays at the high end of the consensus spread offered by peers. BofA's more cautious stance sits in stark contrast to our interpretation, reinforcing an ongoing divide in assessments centered around the EM outlook.
How other firms see it
Certain firms like jpmorgan and db share a more favorable outlook on EM fixed income against a backdrop of improving fundamentals and a less aggressive Fed. Conversely, bofa takes a more tempered view, stressing persistent risk from local political instability and inflation uncertainties.
Obvious candidates for cross-reference include emerging market currencies (like USD/BRL and USD/INR), which could reflect broader trends in bond yields and central bank policies shaping the EM landscape.
Market Implications
Traders should closely monitor the 295 basis points spread as an indicator of market sentiment, particularly ahead of upcoming Fed policy statements. Additionally, positioning around emerging market currencies may reveal shifts in risk appetite that impact bond valuations significantly.
From the original
Jonny Goulden, Anezka Christovova and Nora Szentivanyi discuss the latest market developments and their impacts for the EM fixed income asset class. This podcast was recorded on 11 September 2025. This communication is provided for information purposes only. Institutional clients
Related speeches
4 itemsEM Fixed Income: Emerging Markets Outlook and Strategy: Hold reduced EM exposure into the summer as market pricing and positioning are downplaying risks
The desk maintains a cautious outlook on Emerging Markets (EM) fixed income, advocating for reduced exposure as certain market dynamics jeopardize stability. Per the full note from J.P. Morgan Global Research, the morning of July 18, 2025, highlighted concerns over waning liquidity and stretched market positioning, suggesting that investors may be underestimating risk levels. The commentary emphasizes that EM spreads have narrowed significantly, signaling a potential disconnect between market sentiment and underlying realities, as evidenced by a troubling trend in capital flows and investor behavior that typically precedes periods of volatility.
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