Global bond flows compass EM LC bonds take Middle East tensions in stride

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Global bond flows compass EM LC bonds take Middle East tensions in stride

Fixed Income ● Rates

10 July 2026

Emerging Markets (EM): EM local-currency debt has taken this week’s re-escalation in US-Iran

tensions largely in its stride. We are not seeing material outflows from the handful of

government bond markets where daily flow data are available. At the index level, total returns

(in USD terms) have also avoided any meaningful drawdown. This likely reflects a couple of

factors. First, absent a larger rebound in global crude oil prices, investors appear relatively

sanguine about the inflation and growth implications for EM economies. Second, positioning

across the asset class is likely light, at this time.

Looking ahead, we see the outlook for foreign inflows as broadly constructive − not strong, but

resilient. While there are concerns around US exceptionalism, the global growth backdrop looks

supportive and should provide some offset. Our global strategists expect only a modest rise in

10-year US Treasury yields and a gradual firming in the broad US dollar, implying external

financial conditions may not tighten materially. As a result, we expect foreign inflows into the

asset class to be moderate, with conviction likely to stay low. That being said, markets with

compelling idiosyncratic narratives, such as the market reform momentum in India and ongoing

transformation in Hungary, could continue to attract larger-than-usual inflows.

Higher frequency flow data in Table 1 shows that, in the latest reported week (ending date

varies across markets), non-resident investors net purchased USD597m of Korean Treasury

Bonds in the secondary market. Across Asia, bond inflows were also seen in India (USD343m),