Emerging market (EM) corporate credit continues to challenge traditional assumptions about risk. In 2025, the annual speculative-grade EM corporate default rate fell to 1.17%, well below its long-term average of 2.98% and the global average of 3.66% (1997–2025). This marks the third consecutive year of declining defaults, with just nine EM defaults recorded in 2025, down from 12 in 2024. Positive rating actions dominated, with a downgrade-to-upgrade ratio of 0.35, and the quality of the EM corporate investment universe continues to rise, with more than 60% of the CEMBI Broad Diversified, an industry standard index, now rated investment grade — a stronger rating distribution that has contributed to lower default rates in recent years.
The BB Story: A Structural Advantage, Not Just a Cyclical One
The 2025 default rate numbers are encouraging, but the more powerful case for EM corporate credit lies in the long-term transition data. Using S&P Global Ratings' historical study (1997–2025 for EM, 1981–2025 for global), EM corporate BBs have consistently outperformed the global corporate BB universe on key stability metrics. Over a long-term average1, just 4.1% of EM corporate BBs were downgraded to single B within a 12-month period, compared to 6.1% globally — a roughly 200 basis point (bp) advantage. Rating stability tells the same story: on average1, 80.4% of EM BB credits retained their rating over a one-year period versus 78.9% globally. This advantage compounds over time. Five-year cumulative BB default rates stand at 4.30% for EM corporates versus 5.59% globally, and by year 10, the EM BB cumulative default rate is approximately 6.44% — well below the global equivalent rate of 10.1%.
The bottom line: EM corporate BBs are not inherently more unstable than global peers — in fact, the long-term data history suggests the opposite2. One caveat worth noting, while EM BBs default less frequently vs. the global corporate average, when they do default, they tend to default faster — an average of 5.52 years from a BB rating in EM versus 7.30 years globally. This is an important consideration for credit selection and portfolio construction.
Reward for Risk
Despite the relative ratings stability, EM corporates have historically offered more attractive spreads for the same credit rating level compared to their developed market counterparts. The higher spread for equivalent credit ratings has attracted rating-sensitive institutional allocators, such as insurance companies and pension funds, seeking long-term stable returns. The lower spreads in developed markets can also partly be explained by greater demand, but investors are increasingly looking globally for sources of enhanced yield and increased diversification. The charts below help to illustrate the point: EM corporates have consistently offered a higher spread per turn of leverage vs. their US counterparts and continue to offer a spread premium across ratings categories. This, despite EM Corporates having a lower average leverage in each rating bucket vs. their US peers.
Leverage and spread per turn of leverage charts: BB-rated EM corporates currently carry leverage of 2.7x versus 3.3x for US peers, while offering 107 bps of spread per turn of leverage compared to just 63 bps — a pattern that holds across every rating category from A to B.
Looking Ahead
Over the past three decades, EM corporate credit has demonstrated both resilience and sensitivity to local and global shocks. The resilience in recent years has been supported by favorable financing conditions (domestic and international), improving earnings and prudent balance sheet management which has led to improved EM corporate fundamentals. But the landscape can shift quickly if economic or credit conditions deteriorate. Regional and sectoral risks, as well as issuer-specific vulnerabilities, will continue to shape outcomes, making active portfolio management and a strong focus on bottom-up credit selection critical for investors to monetize the available spread premium. For investors willing to look beyond the headlines, EM corporates offer a rare combination — stronger credit stability than global peers, meaningfully better spread compensation per unit of risk, and an improving fundamental backdrop. The asset class has earned a closer look.