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Peter Marber
Managing Director
A Pleasant Surprise
Last year wasn’t exactly smooth sailing for bond investors, but those who placed their bets on Emerging Markets (EM) sovereign and corporate credits were handsomely rewarded—both in absolute and relative terms.
Fixed-income markets faced significant headwinds throughout 2024, driven by a resilient U.S. economy and the increasingly entrenched "higher-for-longer" interest rate narrative.
Despite a 72-basis-point surge in 10-year U.S. Treasury yields, the U.S. bond index eked out a modest 1.25% gain. By contrast, JP Morgan’s Emerging Markets credit indices delivered striking results: the sovereign benchmark surged by +6.54%, while the diversified corporate index soared to +7.63%. Sovereign spreads narrowed by 58 bps to close at +325 bps above Treasuries, and corporate spreads tightened even further, shedding 75 bps to end at +206 bps.
Sector and Country Dynamics
JP Morgan’s EM benchmarks, which blend investment-grade (IG) and high-yield (HY) bonds, offered a wealth of opportunities for sector and country-specific gains. Frontier markets and lower-rated segments, in particular, shone brightly in 2024, rewarding active managers.
For instance, while the IG sovereign segment delivered a modest +0.32%, the HY category roared ahead with a +13.00% return. Of the sovereign index’s 654 bps total return, a staggering 627 bps—more than 95%—came from high-yield issues. The biggest boosts came from the lower end of the credit spectrum, with C-rated bonds contributing 364 bps and single-B issues adding another 202 bps.
Argentina led with a return of +103.07% which added a substantial 141 bps to the sovereign index returns, fueled by optimism surrounding the Milei administration’s efforts to curb inflation and improve fiscal discipline. Similarly, Egypt (+31.09%) and Ecuador (+70.69%) collectively contributed 127 bps to the benchmark's total return, driven by similar hopes for economic reform and stabilization.
Corporate Bonds: Strong Performance Across the Board
Although the EM corporate index carries a weighted IG rating, its inclusion of high-yield bonds mirrors the sovereign benchmark’s structure. In 2024, corporate bonds also posted robust results.
The IG corporate segment outperformed the U.S. bond index by +4.9%—a difference of 458 bps. High-yield corporates, however, stole the spotlight, surging +11.7%. This impressive rally coincided with default rates normalizing after peaking at 8.7% in 2023 and a steep 14.2% in 2022.
What Lies Ahead in 2025?
As 2025 kicks off, the financial markets face a cloud of uncertainty. Persistently high U.S. inflation could delay the Federal Reserve’s long-anticipated rate cuts, dashing Wall Street’s 2024 hopes for early monetary easing. Compounding this uncertainty are the Trump Administration’s flurry of tariff proposals, geopolitical maneuvers, and policy reversals, which could either rattle or bolster markets—depending on how they play out.
Amid this backdrop, it is our belief EM credit continues to offer compelling relative value. The EM sovereign index begins 2025 with a yield-to-worst of 7.86%, while the corporate index starts at 6.56%—both maintaining attractive spreads compared to their U.S. and European counterparts. With over 75 countries represented in EM bond indices, many markets remain under the radar of global turbulence. For investors, they present not only the allure of healthy carry but also the potential for upside if U.S. rate cuts materialize.
Disclaimer
The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. This document does not constitute investment advice. The contents of this document represent Global Evolution's general views on certain matters, and is not based upon, and does not consider, the specific circumstance of any investor.
This communication may contain Index data from J.P. Morgan or data derived from such Index data. Index data information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan's prior written approval. ©2025, J.P. Morgan Chase & Co. All rights reserved.
While reasonable care has been taken to ensure that the information herein is factually correct, Global Evolution makes no representation or guarantee as to its accuracy or completeness. The information herein is subject to change without notice. Certain information contained herein has been provided by third party sources which are believed to be reliable, but accuracy and completeness cannot be guaranteed. Global Evolution does not guarantee the accuracy of information obtained from third party/other sources.
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