Emerging market debt enters the final quarter of 2026 with a supportive backdrop. Growth remains resilient, inflation is stabilising and markets increasingly reflect stronger EM fundamentals.
Emerging market debt: Stronger fundamentals, attractive real yields
Emerging market debt (EMD) enters the final quarter of 2026 with a supportive backdrop. Growth remains resilient, inflation is stabilising and markets increasingly reflect stronger EM fundamentals. As this month’s chart shows, emerging markets stand out, offering higher nominal and real yields than developed markets, which face greater policy uncertainty, heavier bond-supply pressure and more visible political challenges.
Emerging market growth is expected to be 4.1% in 2026 and rise to 4.3% in 2027, with China’s GDP growth expected at 4.6% in 2026 (Source J.P. Morgan Asset Management, as of September 2026). In addition, EM inflation is stabilising after the second-quarter shock, with remaining upside risks linked to factors such as El Niño and second-round effects. Crucially, inflation expectations remain broadly anchored, with little evidence of a broad demand-side impulse. As a result, EM central banks are more likely to calibrate policy than launch full hiking cycles.
Fundamentals continue to improve. Compared with 2022, EM fiscal deficits are narrower, debt levels are lower, inflation is more contained, real policy yields are higher and current-account positions are stronger. Reserve coverage among B rated EM sovereigns has also doubled, providing a larger cushion against external shocks. By contrast, developed market fiscal deficits remain wider and debt burdens heavier.
Policy paths should continue to diverge across regions and countries, with policy rates remaining higher in Latin America, gradually easing in Europe, the Middle East and Africa (EMEA), and remaining lower in Asia. Overall, though, real rates are likely to remain significantly higher than in developed markets, where central banks have less room to meaningfully tighten monetary policy. For EMD investors, this backdrop continues to offer attractive return prospects, relative value opportunities and a potential buffer against economic shocks.