Emerging-market investors favor local-currency bonds as dollar debt lags

The $6.7 trillion local-currency emerging-market bond universe is having a moment. While dollar-denominated sovereign debt from developing nations struggles under the weight of elevated US Treasury yields, bonds issued in local currencies have delivered returns between 9% and 19% in USD terms across major indices in 2025, marking their best performance since 2019. The great ownership migration To understand the current dynamic, look at who’s holding the paper. Foreign ownership of Mexican local-currency bonds has plummeted to roughly 11%, down from 29% since early 2020. Indonesia tells a similar story: foreign holders now account for about 13% of local-currency bonds, compared to nearly 40% over the same period. What’s replaced foreign capital is domestic institutional money, specifically pension funds, banks, and insurance companies. These buyers tend to hold bonds to maturity rather than dumping them at the first sign of a global risk-off event. This pattern has played out across some of the biggest EM debt markets, including Brazil, India, and South Africa, where domestic players have absorbed the lion’s share of new issuances. Why dollar debt is losing its shine When US Treasur...