The US Treasury market is paying over 5 percent to sell 30-year bonds for the first time in decades, creating pressure for Treasury Secretary Scott Bessent. Classically, higher safe-asset returns would drain capital from riskier emerging-market bonds. However, JPMorgan indices for both local-currency and dollar-denominated emerging-market bonds have risen 8 to 9 percent in the past year, despite geopolitical shocks like the Iran war.

Emerging markets remain attractive as many have set policy rates well above inflation since 2023 to lure investors. Brazil's 10-year bonds offer a real yield of about 10 percent, while South Africa's stand at roughly 4 percent. Furthermore, the asset class has become relatively less risky, with aggregate fiscal deficits narrowed.

Manager Ninety One notes that a composite "Republic of EM" only overspends tax revenue by 1 percent of GDP, excluding interest costs. Despite high US rates, growth has not been crushed, suggesting US imports from emerging markets will not fall significantly. The US itself is projected to overspend by 2.6 percent of GDP this year.

While local-currency yields in Thailand, South Korea, and Malaysia sit below US levels, emerging-market bonds remain a diversified asset class that compares favorably to US Treasuries, though high real rates remain brutal for domestic borrowers.