Resilient. An alpha engine. Diversification from Developed Markets.

Hard-currency emerging-market debt offers differentiated, quality-adjusted returns because country selection matters more than broad rate or spread direction.

• The asset class spans roughly 90 countries with independent economic cycles, policy choices and political risks; only about 30% of top-quartile countries remain in that quartile the following year.
• Through September 30, 2026, the EMBI GD returned -0.7% versus -2.9% for the Bloomberg U.S. Aggregate, while individual EMD country returns ranged from roughly -5% to +60%; Venezuela gained about 60%, Lebanon more than 25% and Ukraine nearly 7%.
• EM's spread over U.S. investment grade was about 90 basis points, its narrowest gap since 2008, but ratings-matched pickup was only about 9 basis points; TCW still finds EM credit attractive because comparable yields were about 6% for investment grade and 8.3% for high yield with stronger credit metrics.
• Advanced-economy government debt is projected by the IMF to rise from 108% of GDP in 2025 to roughly 115% in 2031, compared with 57.5% for emerging markets excluding China; EM's recent default cycle has also left several former defaulters with lower debt and reform programs.
• EM spread correlations with U.S. investment grade and global aggregate spreads rose from the mid-0.6s in the 2000s to the high-0.8s in the 2020s, but the market remains differentiated through country-level drivers and exposure to growth themes beyond U.S. AI issuance.
• From 1996 to 2016, EM returned about 9.5% annually versus 6.2% for U.S. investment grade but with 11.4% versus 5.4% volatility; over the past decade, a 28% EM allocation reduced portfolio volatility and a 56% allocation added 41 basis points annually at the same volatility.

Takeaway: Investors should view EMD as a potentially core source of diversified credit returns and alpha, using continuous country and security selection rather than passive exposure, while recognizing that spreads are tight and correlations with developed-market credit remain high.