Barings Urges Blended Strategy for Emerging Market Debt
Managers of emerging market debt are advised to adopt a blended approach to capture better credit quality across sovereign tiers.
Updated on Oct. 16, 2026 in Economic Indicators
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Barings released a report advocating for a blended investment approach to emerging market debt, which spans more than 90 countries and 1,500 corporate issuers. This strategy suggests active management across sovereign, corporate, and local currency debt to navigate global market exposure.
Why it matters
The report aims to reframe emerging market debt as a high-quality, diversified asset class rather than just high-risk, citing that 60.1% of emerging market corporate debt currently holds investment grade ratings. This shift in perspective could influence how institutions allocate capital to emerging economies, which represent 23% of global GDP.
The emerging market debt universe encompasses 90 countries and 1,500 corporate issuers, with 80% of the local currency debt market holding investment grade ratings. Sovereign debt recorded an average annual default rate of 2.7% from 2016 to 2026, compared to 5.2% for emerging market high yield corporate defaults.
The players
Barings
An international investment management firm that provides institutional, intermediary, and other investors with access to a wide range of asset classes.
The details
A blended approach relies on active management to move capital between sovereign, corporate, and local currency debt buckets rather than passive exposure. By spreading investments across these categories, firms aim to mitigate the risk associated with emerging market volatility while maintaining liquidity. The strategy positions active managers to reallocate funds dynamically to capture credit quality across the 90-country universe.
Timeline
2016-2026: Emerging market sovereign debt recorded an average annual default rate of 2.7%.
December 31, 2025: Date documenting investment grade status for emerging market debt categories.
2025: The US dollar began a period of decline.
Market Landscape
The push for blended emerging market debt strategies arrives as the US dollar experiences a decline, changing the relative attractiveness of international credit. This follows a broader industry trend of re-evaluating emerging markets in the context of global GDP contributions.
Operators and financial managers should compare their current high-yield exposure against the 2.7% sovereign default benchmark when evaluating emerging market risk. If your business holds debt instruments, monitor the ongoing decline of the US dollar to assess potential impacts on local currency liquidity.
The takeaway
The data suggests that emerging market corporate debt may be more stable than historical perception indicates, with an average 5.2% high-yield default rate. Compare this against your specific internal risk tolerance and the 2% default rate for US high-yield bonds to determine if current allocations warrant rebalancing.
Further reading
For more on shifting credit trends, see our Economic Indicators section.
Source note: This article includes information reported by Fund Selector Asia.
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