This week I sat down with Eric Fine, who manages emerging market bond portfolios at VanEck. I had a tidy interview all mapped out… and then escalating events in the Middle East reshuffled the deck. That’s okay because it ultimately led us somewhere more interesting than where I’d intended to go.
Eric has over 30 years of experience dedicated solely to emerging markets debt, and he makes an argument that, once you hear it, is hard to shake: The developed world has a bond problem, and almost nobody is paying attention.
Here’s the setup…
Emerging market bonds currently yield roughly double what you get in developed markets. That alone should grab your attention, but the part that should really make you sit up is that volatility in EM bonds and EM currencies has fallen below developed market levels in recent years. Double the return with lower volatility.
As Eric put it to me, “I don’t really know what else to say.” And frankly, neither do I. The deeper story is structural, not cyclical. Emerging market governments carry roughly half the debt loads of their developed market counterparts.
Their central banks have maintained discipline, keeping real rates high and inflation anchored, while the Fed, the Bank of Japan, the European Central Bank, and the Bank of England have repeatedly demonstrated that they can’t stay focused on inflation alone when fiscal pressures mount. Eric calls it fiscal dominance, and he sees no mechanism by which developed markets reverse it.
He made a comparison that stuck with me. Imagine you’re a Portuguese financial advisor in 2010, telling your clients that the safest instruments in the world are Portuguese government bonds—because that’s what the regulators say. Then Portugal’s bonds get downgraded below Nigeria. That’s not ancient history, and Eric sees echoes of that dynamic playing out more broadly across the developed world today.
What’s particularly compelling is who doesn’t own these bonds. The locals—citizens, pension funds, institutions in emerging market countries themselves—are overwhelmingly positioned long the US dollar. They don’t own much of their own assets. When you ask the classic trading question (“who’s left to sell?”), the answer is basically nobody. On the other side, you’ve got central banks around the world quietly diversifying reserves, buying bonds in currencies like the Malaysian ringgit, the Thai baht, and the Chinese yuan. They’re not sending press releases about it, just like they didn’t send press releases when they were buying gold.
Eric frames the real risk to his thesis not as some EM blowup but something far less likely: that the US, Japan, the UK, and Europe suddenly find the political will to fix their fiscal problems.
I’m not holding my breath on this.
After 2025 delivered a monster year for EM bonds, the natural question is whether the trade is over. Eric doesn’t think so. He believes interest in the space will grow not because anyone consciously chooses it but because the returns just keep showing up and eventually become impossible to ignore.
For more from my conversation with Eric, including some topics I didn’t get to unpack here, check out the full interview.
Click the image above to watch my full interview with Eric Fine.
Also in this interview:
-
How the Middle East conflict created clear winners among EM—and why the energy story is more complicated than a simple top-down read
-
The real story behind de-dollarization: why Eric says the dollar won’t lose its status but will slowly share it, and how the Chinese yuan fits in
-
Why Asian currencies have been the quiet outperformers for six years and what the “tariff meeting” really meant for FX
-
The hidden terms-of-trade shock: how countries like India and China quietly secured oil at prices the rest of the market couldn’t see
-
Why Europe, not the US, may be the natural growth market for EM bond flows
A transcript of our conversation is available here.
You can learn more about Eric Fine here.
Thank you for watching and reading,
Ed D’Agostino, Partner & COO
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
© Mauldin Economics
Read more commentaries by Mauldin Economics
