GMO’s Fixed Income Insights (Oct 2025) argues that hard currency emerging market (EM) debt continues to deliver attractive risk-adjusted returns despite recent shocks.
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EM sovereigns weathered multiple crises—COVID, war-driven inflation, and Fed tightening—without systemic defaults; no sovereign has defaulted in 2024–25.
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Recent restructurings in Ecuador, Zambia, Ghana, and Sri Lanka delivered recoveries above 50 cents on the dollar, consistent with long-term norms.
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Historically, EM hard currency debt earned 3–4% excess return over developed market bonds, with credit spreads still compensating more than actual default risk; GMO also sees value in EM local currencies versus the U.S. dollar.
Does EM debt deserve a permanent seat in diversified portfolios? The full report makes a compelling strategic case
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