Emerging market corporate bonds have long been treated as a risky add-on. That picture is out of date. The hard-currency market has grown to around USD 2.6 trillion, more than half of it is rated investment grade, and leverage is lower than in many developed-market peers. The improvement has been priced in, though: spreads are tight. For institutional investors the question is no longer whether the asset class has come of age, but which issuers still pay enough for the risks that remain.
When investors think about bonds, they usually start with developed-market government bonds, investment grade credit or high yield. Emerging market corporate debt remains, in the words of DPAM fund manager Thomas Timmerman, "a relatively underexplored segment of global bond markets". That is surprising given where growth comes from. S&P Global expects emerging markets to account for around 65% of global economic growth up to 2035, with average annual growth of about 4.1% against 1.6% in advanced economies. Many investors still access these economies mainly through equities or sovereign bonds and overlook the companies driving the change.
According to DPAM, the hard-currency EM corporate bond universe has grown from USD 260 billion in 2002 to approximately USD 2.6 trillion, larger than EM sovereign hard-currency debt and, by DPAM's count, larger than the high yield market. Aberdeen already put the market at over USD 2.5 trillion in 2024, with an average rating of BBB. DPAM counts around 750 issuers from 68 countries across Latin America, Asia, the Middle East, Africa and Emerging Europe. Universe definitions differ between providers, so these figures describe the order of magnitude rather than a precise count.
The issuer list is also less local than many expect. The largest holdings of the iShares J.P. Morgan EM Corporate Bond ETF include Saudi Aramco, Ecopetrol, OCP, Standard Chartered and Anglo American Capital. Index providers assign issuers partly by where they do business, not only by where they are incorporated.
Indicator | Value | Source, date |
|---|---|---|
Market size (hard currency) | approx. USD 2.6 trillion | DPAM, September 2026 |
Issuers / countries | approx. 750 / 68 | DPAM, September 2026 |
Share rated A or better | 40% (2020: 31%) | DPAM, July 2026 |
Average net leverage | approx. 1.2x | UBP, Outlook 2026 |
Option-adjusted spread | approx. 183 bp | iShares CEMBI BD Core ETF, 15 Oct 2026 |
Effective duration | 4.2 years | iShares CEMBI BD Core ETF, 15 Oct 2026 |
Default rate 2026 | 2.7% YTD, approx. 3.1% expected | DPAM, September 2026 |
Sources: DPAM, UBP, BlackRock/iShares. Figures refer to different universes and dates and are not directly comparable.
The fundamentals are the strongest part of the case. DPAM reports that the share of issuers rated A or better rose from 31% in 2020 to 40% in July 2026. BB-rated issuers fell from 18% to 14% of the index, and B-rated issuers from 9% to 6%. A better index mix can come from upgrades, from new higher-rated issuers or from weaker names dropping out. It shows that the universe has improved, not that every company has.
Other sources point the same way. UBP puts average leverage of EM companies at around 1.2x, a 0.6x improvement on a decade ago, and notes that more than half of dollar-denominated issues are now investment grade. A rating-matched comparison by Aberdeen from 2024 is particularly telling: BB-rated EM corporates had net leverage of 2.3x EBITDA, against 3.6x in US high yield and 4.5x in European high yield.
DPAM argues that EM corporates still pay a premium over comparable developed-market issuers. "This premium is often driven more by investors' perception of emerging markets than by company-specific risks," Timmerman writes. Where that holds, investors are paid for a label rather than for weaker credit.
Defaults are usually the first question investors raise. DPAM puts the year-to-date default rate at 2.7% and expects about 3.1% for the full year. UBS Asset Management's 2026 Fixed Income Default Study forecasts 3.2% for EM high yield corporates. DPAM does not specify whether its figure covers the whole market or high yield only, so comparisons with US and European default rates need care.
The losses are concentrated. According to DPAM, 75% of default volume comes from two Brazilian issuers. Raízen, an investment grade name widely held by crossover and IG funds, announced a debt restructuring earlier this year, which Morgan Stanley identified as a major drag on the index in the first quarter. Braskem was downgraded by Fitch to "Restricted Default" in August 2026 after failing to pay certain financial obligations. Two lessons follow. The stress is not spread across the market, and a single large borrower can still dominate the loss statistics, even one rated investment grade a few months earlier.
DPAM concedes the main counterargument itself: credit spreads are tight relative to historical averages. In mid-October the option-adjusted spread of the iShares ETF tracking the J.P. Morgan CEMBI Broad Diversified Core Index stood at about 183 basis points. A large part of today's attractive all-in yield therefore comes from US Treasury yields, not from compensation for credit risk.
Income and total return can also diverge. The ETF's trailing 12-month distribution yield was 5.4% in mid-October, yet its year-to-date total return in US dollars was close to zero. In 2022 it lost 12.3%. Morgan Stanley's first-quarter attribution shows how the parts interact: the CEMBI Broad Diversified lost 0.21%, as spread moves cost 0.52 percentage points and US rates added 0.31.
DPAM nevertheless sees three reasons to stay constructive:
DPAM also expects the wave of bond issuance linked to hyperscaler and data-centre investment to be mainly a developed-market supply issue, sparing EM spreads. That is a plausible view, but it remains a manager's assessment rather than a measured advantage.
Breadth does not protect against shared shocks. Morgan Stanley attributes about half of the negative spread return in the investment grade part of the CEMBI in the first quarter of 2026 to Gulf issuers, as spreads moved on the US-Israel-Iran conflict. Liquidity has improved as the investor base has broadened, but in stressed markets the bonds cannot always be sold at stable prices. Diversification spreads these risks. It does not remove them.
For a Swiss pension fund or insurer, the dollar yield is only a starting point. Hedging into francs costs roughly the interest rate gap between the dollar and the franc, which absorbs a substantial share of the carry. Listed EM corporate bonds count as ordinary bonds under BVV 2, so they do not compete for the alternatives budget. A realistic assessment should show separately:
Emerging market corporate bonds have become a large, largely investment grade asset class whose balance sheets compare well with developed-market peers of the same rating. With thin risk premia, broad market exposure is less compelling than careful issuer selection. The asset class belongs on the radar of fixed income investors, but entered at today's spreads it rewards discipline more than enthusiasm.
Bonds issued by companies based in, or doing most of their business in, emerging economies. This article focuses on hard-currency bonds, mainly in US dollars, as tracked by J.P. Morgan's CEMBI index family.
No. More than half of dollar-denominated issues are rated investment grade, according to UBP, and Aberdeen puts the average rating of the asset class at BBB.
Around USD 2.6 trillion in hard currency according to DPAM, up from USD 260 billion in 2002. DPAM counts about 750 issuers from 68 countries.
DPAM puts year-to-date defaults at 2.7% and expects about 3.1% for 2026. According to DPAM, 75% of default volume comes from two Brazilian issuers, Raízen and Braskem.
Tight spreads of around 180 basis points, concentrated defaults among large issuers, geopolitical shocks that hit whole regions, limited liquidity in stressed markets and, for Swiss investors, currency hedging costs.
Listed EM corporate bonds count as ordinary bonds under BVV 2. The decisive figure is the yield after hedging into Swiss francs and after costs, not the headline dollar yield.
Disclosure: DPAM is a partner of the Swiss Institutional Symposium 2026.
Sources: DPAM, Thomas Timmerman, «How EM corporates go beyond the usual fixed income playbook» (30 September 2026, marketing communication); S&P Global press release (16 October 2024); UBP, «The case for emerging market debt», Investment Outlook 2026; Aberdeen, «The case for EM corporate bonds» (26 September 2024); Morgan Stanley Investment Management, «Emerging Markets Debt Monitor Q1 2026» (April 2026); Braskem notice to the market on the Fitch rating action (17 August 2026); UBS Asset Management, «2026 Fixed Income Default Study»; BlackRock/iShares fund data (15 October 2026). This article does not constitute investment advice.