Fixed income
Emerging market debt (EMD)
An emerging market bond is a fixed income debt issued by countries with developing economies as well as by corporations within those nations.
EMD provides financing for emerging economies and offers diversification benefits to investors, as these markets may perform differently from developed markets. EMD includes both sovereign and corporate debt and can be issued in either local or hard currencies (like the US dollar). Investors are attracted to EMD for its potential for high returns, but they must also consider risks like currency volatility, political instability, and credit risk. Popular among income-seeking and growth-oriented investors, EMD plays a valuable role in diversified, global portfolios.
Timeline of emerging market debt
Early 20th century: Emerging economies issue bonds intermittently, with limited investor confidence.
1980s: US Treasury Secretary Nicholas Brady introduces ‘Brady bonds’ to help restructure debt in developing countries, especially in Latin America. Bonds are mostly issued in US dollars.
1990s: Growth in Brady bond issuance leads to increased interest in emerging market debt as an asset class.
2000s: Emerging markets mature and stabilize, issuing bonds more frequently in both US dollars and local currencies (local market bonds). Foreign corporations also begin issuing bonds, expanding global credit options.
2000s–2010s: Developing countries implement cohesive fiscal and monetary policies, boosting investor confidence and solidifying emerging market debt as a significant asset class in fixed income.