November 6, 2025 | Emerging Markets Debt
Portfolio Manager
Portfolio Manager
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Frontier markets are having a moment.
In the local currency space, the carry trade still pays, central banks are building reserves, and managed floats are tilting toward appreciation—and it appears investors are taking notice as opportunities expand.
On the hard currency side, both top-down and bottom-up conditions align: liquidity is ample, spreads are tightening, multilateral support is bolstering fundamentals, and high-yield issuers are back in the game, tapping capital markets at reasonable prices—and it appears the market is eager to buy.
In this environment, we’re leaning into frontier markets that combine credible policy frameworks, supportive reform momentum, and attractive yields. Our positioning reflects that conviction across both hard and local currency debt, with exposure concentrated in economies where fundamentals are moving decisively in the right direction.
To achieve an efficient deployment of our risk budget, we divide the investable EM debt universe into three risk buckets—low-beta countries, high-beta countries, and frontier countries.
Source: William Blair, as of September 2025. Beta buckets are based on the team’s qualitative and quantitative analysis. Risk buckets are provided for illustrative purposes only and are not intended as investment advice or as projections of future returns. Overweights/underweights may vary between vehicles.
Our largest hard currency positions are in Senegal, El Salvador, and Benin.
Senegal has been volatile following the surprise revelation that its debt levels were higher than expected. However, we believe support for its Eurobonds is likely, backed by International Monetary Fund (IMF) assistance and the government’s strong commitment to fiscal consolidation.
El Salvador is supported by an IMF program with achievable fiscal targets.
In El Salvador, we hold a 100% government-guaranteed state-owned enterprise bond offering an attractive spread over the sovereign. The country remains supported by an IMF program with achievable fiscal targets, and we remain comfortable with our position.
Benin remains a strong economic story, marked by steady growth, ongoing reforms, and targeted infrastructure investment. We believe the country is on a sustainable debt path, with declining debt levels and a healthy composition. We continue to favor the euro-denominated Eurobonds as our preferred expression of this view.
Our largest local currency positions are in Eswatini, Egypt, and Uzbekistan.
Eswatini’s government continues to focus on the National Development Plan to support a higher level of potential growth. We also like the high sensitivity of the national currency to the rand, which benefited from a weak U.S. dollar over the past quarter.
In Egypt, we remain long the carry trade, with the currency proving resilient amid bouts of heightened risk aversion in the first quarter. Strong multilateral and bilateral support continue to shore up high levels of foreign exchange (FX) reserves.
Uzbekistan is a strong reform story, supported by high levels of remittances and rising gold prices. We prefer to be positioned in the local currency bonds, as the FX market has been under appreciation pressure and the carry remains rewarding for investors in the local market.
Our largest total portfolio positions are in Eswatini, Zambia, and Sri Lanka.
We’ve already discussed Eswatini, and in Zambia, we hold positions in both hard and local currency bonds, supported by value in local rates and the long end of the hard currency curve. With drought effects fading and reform momentum building under the IMF program, we believe fundamentals are improving. The 2053 Eurobond has been a strong performer, reflecting growing confidence that the 2026 trigger—shortening its maturity to 2035 and lifting the coupon—will be met.
Sri Lanka’s successful negotiation to reduce the U.S. tariff rate to 20% is a favorable development.
In Sri Lanka, we remain focused on local currency exposure, supported by a stable inflation outlook, scope for onshore investors to extend duration, and a clearer path for the rupee (with only modest depreciation of about 2% expected in 2025). The Central Bank of Sri Lanka has indicated room to ease policy further if needed to sustain growth, which should support local rates.
On the hard currency side, our position in Sri Lanka’s sovereign Eurobonds (SRILAN MLBs) is backed by improving gross domestic product growth, a stable rupee, lower oil prices, and declining domestic rates. While the market has already priced in an “intermediate upside” scenario, we see potential for a shift toward “higher upside” pricing as catalysts for improvement come into clearer focus. In addition, the government’s successful negotiation to reduce the U.S. tariff rate to 20% is a favorable development.
Yvette Babb is a portfolio manager on William Blair’s emerging markets debt team.
Daniel Wood is a portfolio manager on William Blair’s emerging markets debt team.
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