Many baby boomers have entered the decumulation phase of their financial lives and for them, the priority has shifted from capital appreciation to income stability. Accordingly, diversification and carry (income from coupons) are paramount. Investors value the stable yields bonds provide, especially when they come with managed volatility, and emerging-market debt (EMD) is an excellent source of diversification.
In their quest for stable income, many investors look to Switzerland which, as the world’s leading wealth management hub, offers them access to a wide range of investment strategies, including in the EMD space. With their expertise and solidity, Swiss financial institutions are well equipped to help clients gain exposure to higher-yielding assets while effectively managing risk.
Emerging economies are entering the current economic cycle from a novel position: in terms of sovereign credit, agency rating upgrades have outnumbered downgrades two to one. This represents a sharp contrast with developed markets, which are struggling with widening deficits and higher debt levels. At the same time, the US administration has shown clear signs of favouring a weaker dollar to address its trade imbalance. We have seen this before: in 1971 under Nixon and again with the Plaza Accords in 1985, co-ordinated efforts to rein in dollar strength led to multi-year declines. EMD should therefore benefit from the current context: a softer dollar and lower US interest rates would ease funding pressures and reduce debt servicing costs for emerging-market issuers.
Far from its outdated reputation as a risky niche, and looking beyond macro trends, EMD has provided consistent income and resilience through different rate cycles, rewarding investors who take a selective and patient approach. The figures speak for themselves: over the past two decades, EMD has delivered annual income of roughly 6%, compared with around 5% for US corporates and less than 3% for Treasuries, all with similar volatility.
Geopolitical tensions are reshaping global trade, but rather than curbing flows, they are redirecting them. Supply chains are being rewired, regional demand is growing, and clear distinctions are emerging between winners and laggards. The US is a perfect example, offering generous support to allies such as Argentina while applying stricter terms elsewhere. To make the most of the opportunities that arise in this kind of situation, active management is key: understanding which countries and companies stand to benefit from shifting trade patterns is crucial.
The current environment is also ideal for carry strategies. EMD yields remain comfortably above developed-market equivalents and investors can also benefit from spread compression as fundamentals improve. As risk premiums narrow, bond prices rise, creating the optimal combination of reliable income today and potential capital appreciation tomorrow. For investors looking to build durable portfolios, this ability to generate a regular income while keeping duration and credit risk under control is a considerable advantage. In this sense, EMD offers real benefits in an uncertain world.
For private investors, EMD plays a specific role that complements other asset classes. Currently, it adds good liquidity, daily pricing and diversification. Correlations between EM local-currency yields and those of US Treasuries have fallen sharply since early 2025, helping to smooth portfolio performance through different rate cycles. Default data also tells a story. Since 2002, EM sovereign high-yield defaults have averaged around 2%, compared with 4% in the same segment in the US, with recovery rates significantly higher. EMD investors are therefore being paid more to take lower historical credit risk, supported by stronger governance and deeper local investor bases.
After being neglected for several years, EMD is seeing renewed investor interest, particularly for local-currency strategies. The quality of issuers has improved markedly: close to 80% of the EM local-currency universe and about two-thirds of the hard-currency universe are now investment-grade, marking a structural shift in the asset class’s risk profile. Allocations remain light compared with the size of the market, suggesting substantial room for normalisation.
For investors focused on income generation – for purposes such as retirement – EMD can therefore be a useful portfolio component. As well as stable coupons, it provides a valuable diversification tool, offering potential decorrelation in the event of a drawdown. As a result, it is an asset class that is well worth considering for investors, provided that they have the required expertise: this is where Switzerland is uniquely positioned, with specialists capable of supporting investors with innovative diversification strategies.
The views and opinions expressed by fund managers (internal or external) may differ from the house view. They are shared for informational purposes and do not constitute investment advice or a recommendation.
