Emerging Markets Seize the Risk-on Moment by Rushing to Debt Markets

Countries and corporations across emerging markets are rushing to tap bond markets at the fastest pace in more than a decade. Taking advantage of strong investor demand for higher-yielding assets, issuers are moving quickly before global debt markets potentially face bigger swings in the months ahead.

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Just last week, over $27 billion worth of bonds came to market, featuring sales from Saudi Arabia, Turkey’s sovereign wealth fund, and Brazilian energy major Petrobras. Appetite has been so strong that strategists at JPMorgan boosted their projections for emerging-market sovereign bond issuance, forecasting what could be a record-setting year.

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“It’s like a celebration,” said Eduardo Ordonez, debt portfolio manager at BI Asset Management in Copenhagen. “You have to take advantage while the window is open, in case investor sentiment turns.”

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Lingering inflation and heavy government borrowing have rattled global debt markets. Investors have been unloading bonds over concerns tied to the UK’s shaky fiscal outlook and political uncertainty in France. In Asia, sentiment also dimmed as Japan’s 20-year government bond yield climbed to its highest level since 1999.

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Meanwhile in the U.S., Treasuries have been volatile as traders weighed questions about the Federal Reserve’s independence and the trajectory for interest rates amid frequent criticism from President Donald Trump. Yields pulled back last Friday after disappointing U.S. employment data led some investors to bet on a possible half-point Fed rate cut in mid-September.

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Fed Chair Jerome Powell has already signaled a quarter-point reduction at this month’s meeting, but the broader outlook for U.S. rates remains uncertain. Much depends on Trump’s policy mix ranging from tariffs to fiscal deficits and his stance on the Fed. Any sustained rise in the 10-year Treasury yield, a key global benchmark, would raise borrowing costs for emerging-market issuers.

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“The reason many issuers didn’t wait is that much of the Fed easing has already been priced in,” explained Grant Webster, co-head of emerging-market debt and FX at Ninety One in London. “No one knows for sure if yields five, 10, or 30 years out will really be lower later.”

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Despite turbulence in developed markets, emerging economies have delivered standout returns. Local-currency debt has gained 13% so far this year, while dollar-denominated emerging-market bonds are up more than 8%, Bloomberg indexes show. Both have outperformed developed-market debt, which is up just 6.5%.

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The spread investors demand to hold emerging-market bonds over comparable U.S. Treasuries has narrowed to 298 basis points on average hovering near its tightest levels since 2019, according to JPMorgan data.

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Investor enthusiasm has been evident in fund flows. EM-focused debt funds have seen 20 consecutive weeks of inflows, with $1.9 billion added in the week ending Sept. 3, according to EPFR data compiled by Bank of America.

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Borrowers have wasted no time capitalizing. September is off to its strongest start since at least 2014, Bloomberg data show. Even Brazil, which typically relies on local markets, has tapped the dollar bond market three times this year making 2025 its busiest year for global issuance in more than a decade. Year-to-date, emerging-market borrowers have raised nearly $511 billion, the most since 2021.

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Investor demand for new deals has been extraordinary. Saudi Arabia’s $5.5 billion sukuk attracted orders of roughly $17.5 billion, while Turkey’s sovereign wealth fund drew bids more than ten times the size of its $1 billion bond sale.

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“We’re already running ahead of expectations, so supply is higher than many anticipated,” said Aayush Sonthalia, portfolio manager at PGIM Fixed Income. “Issuers are simply moving early to brace for potential volatility.”

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A pickup in rate volatility could complicate future bond sales for lower-rated issuers and make refinancing harder, potentially triggering financial stress across some developing nations.

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Ninety One’s Webster expects countries such as Indonesia, Kuwait, Oman, and Nigeria to come to market before year-end. Saudi Aramco is preparing a dollar sukuk sale in September, while Mexico could raise up to $10 billion to fund a bond buyback for its struggling state-owned oil producer.

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According to JPMorgan strategists Fariha Ahmmed and Nishant Poojary, September has already seen $8.5 billion in sovereign issuance more than half the typical monthly average of $13.1 billion. They estimate that EM sovereign issuance could approach $240 billion in 2025, a new record. Strategists noted that even lower-rated issuers are likely to test markets while conditions remain favorable.

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“What we’re seeing is a relatively calm window for now,” said Arun Sai, senior multi-asset strategist at Pictet Asset Management in London. “That makes it the perfect moment for countries and companies to meet their funding needs.”

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