The strong allure of EM local currency bonds

Emerging-market local-currency sovereign bonds offer attractive long-term opportunities, especially in Brazil and Paraguay, because elevated real yields coincide with resilient fundamentals and favourable structural trends.

• Emerging-market economies are supported by credible monetary frameworks and relatively contained external imbalances, while Latin American markets benefit from natural resources and distance from major conflicts.
• Brazil’s 10-year local-currency sovereign yields remain above 14%, with estimated real yields of 9% to 10% for 2026 and a Selic rate of 14%, providing carry that could offset currency volatility.
• Brazil accounts for 93% of global niobium production, has 88% renewable electricity generation, and holds 67% of global niobium reserves, 15% of rare-earth reserves and 11% of nickel reserves, supporting its role in the AI infrastructure buildout.
• Paraguay combines public debt of 41.3% of GDP in 2025 with a fiscal deficit that narrowed from 4.1% of GDP in 2023 to 2% in 2025 and is expected to reach 1.5% in 2026.
• Paraguay’s GDP grew 6.6% in 2025 and is projected to expand 4.3% annually from 2026 to 2028, while its bonds offer roughly 9% nominal yield and more than 5% real yield.

Takeaway: Investors should consider a flexible and selective approach to emerging-market local-currency bonds, favouring countries such as Brazil and Paraguay while accounting for currency volatility and avoiding lower-yielding segments heavily represented in broad indexes.