The Emerging Markets Debt Primer, 2026 Edition

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The Emerging Markets Debt Primer, 2026 Edition

Accessible version

GEMs Primer

The Emerging Markets Debt Primer, 2026

Edition

Primer

Overview of the EM debt asset class 22 July 2026

This Primer discusses the market for Emerging Market (EM) debt, the evolution of the GEM Fixed Income Strategy &

asset class since the 1990s, the growth of local debt markets, the macro fundamentals Economics

that drive sovereign performance, debt sustainability considerations, the compensation Global

provided by spreads, defaults and restructurings, and derivative markets.

Lucas Martin, CFA

EM debt universe is expanding SovereignBofAS Debt FI Strategist

lucas.martin@bofa.com

Emerging markets tradable debt stock grew 13% per year, from $2tn in 2000 to about

US$52tn by the end of 2025. Local debt and corporate debt explain most of that growth. JaneSovereignBrauerDebt FI Strategist

BofAS

Returns, Sharpe ratios and correlations jane.brauer@bofa.com

Over the past 10 years, emerging markets external debt has provided an annualized 4% DavidBz Econ/FIBeker& LatAm>> EQ Strategy

return and 9% annualized volatility, resulting in a Sharpe ratio higher than Treasuries. Merrill Lynch (Brazil)

david.beker@bofa.com

Returns were weakly correlated with Treasuries and more highly correlated with US HY,

US IG, EM local debt and EM equities. 10y local market annualized returns were +0.3%.

Debt sustainability considerations

Sovereign spreads are closely linked to investor’s perception about a country’s

probability of default. We outline considerations on debt dynamics (with accompanying

formulas), debt structure, and gross financing needs.

Historical probabilities of default

Sovereign external debt investors require compensation for both default and non-default

risks.