Weak dollar drives record gains for emerging market debt

Driven by a decline in confidence in the US dollar, emerging market local bonds have achieved their best performance in the first half of the year since 2009. This surge is fueled by money managers seeking alternatives to the weakening dollar. The index of emerging-market local debt has returned over 12% in the first half of 2025, surpassing hard-currency bonds. The dollar's poor performance, down almost 11% this year, has led to significant inflows into EM-debt funds, attracting over $21 billion. Latin American bonds, such as Mexico's Mbonos and some Brazilian government bonds, have seen substantial gains. Investors anticipate further interest rate cuts in developing countries, contributing to the appeal of these assets.