June 16, 2026 | Emerging Markets Debt
Portfolio Manager
View Fund:
https://im.williamblair.com/investments/sicav-funds/lu2093699408-emerging-markets-debt-local-currency-fund
View Strategy:
https://im.williamblair.com/investments/separate-accounts/emerging-markets-debt-local-currency
Want the latest insights on the economy and other forces shaping the investment landscape?
Subscribe to our Investing Insights newsletter.
For years, EM local currency debt has been one of the most misunderstood segments of the fixed-income market. It can offer attractive yields, exposure to economies growing faster than many developed markets, and diversification benefits that can complement traditional fixed-income allocations. Despite these advantages, many investors have remained cautious, because they often don’t appreciate the full picture: EM local debt is often evaluated as a currency story when it should be evaluated as both a bond and currency story.
The bond story is straightforward: One of the most underappreciated developments in EMs over the past two decades has been the evolution of monetary policy.
Historically, many investors viewed EMs as countries with weak institutions, unstable inflation dynamics, and limited policy credibility. While those perceptions may have been justified decades ago, the reality today is often markedly different.
Many EM central banks have established strong inflation-fighting credentials and have demonstrated a willingness to act proactively when inflation pressures emerge. In several cases, policymakers began tightening monetary policy well before developed market (DM) central banks responded to post-pandemic inflation.
Many EMs continue to benefit from stronger long-term growth prospects than their DM counterparts.
The result is that many EMs continue to offer substantially higher real interest rates than those available in DMs. For fixed-income investors, those higher real rates provide an important source of return and can help create a larger cushion against future volatility.
At the same time, many EMs continue to benefit from stronger long-term growth prospects than their DM counterparts. While individual countries face unique challenges, the broader EM universe remains supported by favorable demographics, rising consumption, infrastructure investment, and increasing participation in global trade.
These improving local debt fundamentals have benefited underlying bonds.
If local debt fundamentals have improved, why has the asset class not consistently translated those advantages into stronger investor returns?
The answer lies in the fact that EM local currency debt has two distinct return drivers: the performance of the underlying bonds and the movement of local currencies relative to the investor’s home currency.
This distinction is important because the currency component—particularly during periods of U.S. dollar strength—has often masked much of the asset class’s underlying value. When EM currencies weaken against the U.S. dollar, the currency impact can overwhelm otherwise attractive bond returns, creating the impression that the asset class itself is underperforming.
The challenge for local currency debt has been the extraordinary strength of the U.S. dollar over much of the past decade.
The challenge has been the extraordinary strength of the U.S. dollar over much of the past decade. Sustained dollar appreciation has historically created headwinds for EM currencies, frequently offsetting a meaningful portion of local bond returns for U.S.-based investors.
Many EM currencies now appear inexpensive relative to their historical valuations. In many cases, they remain competitive from a trade perspective and are supported by improving economic fundamentals. Yet valuation alone is often insufficient to drive appreciation while the dollar remains in a prolonged uptrend.
We believe the key question for investors is whether that backdrop is beginning to change. If the period of exceptional dollar strength that characterized much of the past decade is fading, investors may be able to capture not only the attractive yields available in local bond markets, but also potential support from currencies that appear historically undervalued.
Looking forward, investors may be approaching a different environment. After more than a decade of exceptional U.S. dollar strength, the forces that supported the dollar’s outperformance may be moderating. While forecasting currencies is notoriously difficult, investors may not need a sharply weaker dollar for EM local debt to benefit.
Rather than requiring a prolonged period of dollar weakness, local debt may simply benefit from a more stable dollar backdrop. If the currency headwind becomes less severe, investors could gain greater exposure to the underlying drivers that have long supported the asset class: elevated yields, attractive carry, and favorable real interest rate differentials.
EM currencies do not need to appreciate dramatically for local debt to become more attractive.
Importantly, EM currencies do not need to appreciate dramatically for local debt to become more attractive. A reduction in currency volatility or a moderation in dollar strength may be sufficient to allow the bond component of returns to play a larger role in overall performance.
This possibility becomes increasingly relevant in a world where developed-market bond yields remain relatively constrained and investors continue to search for differentiated sources of income and diversification.
EM local debt is unlikely to become a risk-free asset class. Currency volatility, political developments, commodity price shocks, and global economic uncertainty may continue to influence returns.
Yet as we have shown, investors may be overlooking how much the asset class has evolved. While much of the attention has focused on currency movements, the underlying fundamentals tell a different story—one characterized by improved policy credibility, real yields, and stronger economic prospects across many EMs.
For much of the past decade, a powerful U.S. dollar obscured those strengths. If that headwind becomes less severe, investors may find that the return potential of EM local debt looks different than it has in recent memory.
Sometimes the most compelling opportunities are not new opportunities at all—they are familiar asset classes viewed through a new lens.
Any investment or strategy mentioned herein may not be appropriate for every investor. There can be no assurance that investment objectives will be met. Products and services listed are available only to residents of this jurisdiction and may only be available to certain categories of investors. The information on this website does not constitute an offer for products or services, or a solicitation of an offer to any persons outside of this jurisdiction who are prohibited from receiving such information under applicable laws and regulations. Nothing on this webpage should be construed as advice and is therefore not a recommendation to buy or sell shares.
Please carefully consider the William Blair Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus and summary prospectus, which you may obtain by calling 1-800-742-7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss.
The William Blair Funds are distributed by William Blair & Company, L.L.C., member FINRA/SIPC.
The William Blair SICAV is a Luxembourg investment company with variable capital registered with the Commission de Surveillance du Secteur Financier (“CSSF”) which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). The Management Company of the SICAV has appointed William Blair Investment Management, LLC as the investment manager for the fund.
Please carefully consider the investment objectives, risks, charges, and expenses of the William Blair SICAV. This and other important information is contained in the prospectus and Key Investor Information Document (KIID). Read these documents carefully before investing. The information contained on this website is not a substitute for those documents or for professional external advice.
Information and opinions expressed are those of the authors and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC, or affiliates. Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Information is current as of the date appearing in this material only and subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. This material may include estimates, outlooks, projections, and other forward-looking statements. Due to a variety of factors, actual events may differ significantly from those presented.
Investing involves risks, including the possible loss of principal. Equity securities may decline in value due to both real and perceived general market, economic, and industry conditions. The securities of smaller companies may be more volatile and less liquid than securities of larger companies. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks. These risks may be enhanced in emerging markets and frontier markets. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. High-yield, lower-rated, securities involve greater risk than higher-rated securities. Different investment styles may shift in and out of favor depending on market conditions. Diversification does not ensure against loss.
Past performance is not indicative of future returns. References to specific companies are for illustrative purposes only and should not be construed as investment advice or a recommendation to buy or sell any security.
William Blair Investment Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.
Issued in the United Kingdom by William Blair International, Ltd., authorized and regulated by the Financial Conduct Authority (FCA), and is only directed at and is only made available to persons falling within articles 19, 38, 47, and 49 of the Financial Services and Markets Act of 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons").
Issued in the European Economic Area (EEA) by William Blair B.V., authorized and supervised by the Dutch Authority for the Financial Markets (AFM) under license number 14006134 and also supervised by the Dutch Central Bank (DNB), registered at the Dutch Chamber of Commerce under number 82375682 and has its statutory seat in Amsterdam, the Netherlands. This material is only intended for eligible counterparties and professional clients.
Issued in Switzerland by William Blair Investment Services (Zurich) GmbH, Talstrasse 65, 8001 Zurich, Switzerland ("WBIS"). WBIS is engaged in the offering of collective investment schemes and renders further, non-regulated services in the financial sector. WBIS is affiliated with FINOS Finanzomubdsstelle Schweiz, a recognized ombudsman office where clients may initiate mediation proceedings pursuant to articles 74 et seq. of the Swiss Financial Services Act ("FinSA"). The client advisers of WBIS are registered with regservices.ch by BX Swiss AG, a client adviser registration body authorized by the Swiss Financial Market Supervisory Authority ("FINMA"). WBIS is not supervised by FINMA or any other supervisory authority or self-regulatory organization. This material is only intended for institutional and professional clients pursuant to article 4(3) to (5) FinSA.
Issued in Australia by William Blair Investment Management, LLC (“William Blair”), which is exempt from the requirement to hold an Australian financial services license under Australia's Corporations Act 2001 (Cth). William Blair is registered as an investment advisor with the U.S. Securities and Exchange Commission (“SEC”) and regulated by the SEC under the U.S. Investment Advisers Act of 1940, which differs from Australian laws. This material is intended only for wholesale clients.
Issued in Singapore by William Blair International (Singapore) Pte. Ltd. (Registration Number 201943312R), which is regulated by the Monetary Authority of Singapore under a Capital Markets Services License to conduct fund management activities. This material is intended only for institutional investors and may not be distributed to retail investors.
Issued in Canada by William Blair Investment Management, LLC, which relies on the international adviser exemption, pursuant to section 8.26 of National Instrument 31-103 in Canada.
The content contained in this site is intended as informational or educational in nature and does not constitute investment advice or a recommendation of any investment strategy or product for a particular investor. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions. Investors should consult a financial professional/financial consultant or investment adviser before making any investment decisions. Investing includes the risk of loss.
Copyright © 2026 William Blair. William Blair is a registered trademark of William Blair & Company, L.L.C. “William Blair” refers to William Blair Investment Management, LLC and affiliates.
