The 1995 Parallels: Why Global Investors Should Embrace Emerging Markets and Local Currency Debt in 2026

The U.S. Treasury yield curve is stabilizing, and the dollar is losing its grip. Sound familiar? , a similar mix of macroeconomic forces reshaped global capital flows, . But this time, the playbook for investors is clearer-and the opportunities in emerging markets (EM) local currency debt are too compelling to ignore.

Let's start with the yield curve. , the Fed's aggressive rate hikes in 1994 triggered a sell-off in EM debt as investors fled to Treasuries. , and the Fed is expected to pivot to rate cuts, driven by a cooling labor market and stubborn inflation. This shift will steepen the , with long-term rates remaining elevated due to fiscal deficits and corporate bond issuance. The result? A more favorable environment for , where investors can lock in higher real yields without the currency risk that plagued the 1994-1995 period.

The dollar's decline is another critical parallel. , the dollar's volatility was fueled by trade wars and geopolitical tensions. , J.P. Morgan Global Research is bearish , projecting a weaker dollar as the Fed's easing contrasts with dovish policies from the ECB and other central banks. A weaker dollar historically boosts and local debt returns, and 2026 is no exception. With EM local debt offering an 8% return forecast , .

But the case isn't just about macro trends. EM local currency debt has evolved into , high-quality asset class. Unlike the speculative of the 1990s, today's EM debt is underpinned by stronger and diversified economies. Active management is key here: investors can pick winners in regions with solid growth fundamentals while hedging against .

Critics will point to 1995's -like Mexico's 1994 crises-as a cautionary tale. But 2026's EM landscape is more resilient. Governments have deleveraged , and global investors are no longer as leveraged to EM volatility. Plus, the Fed's rate cuts will act as a tailwind, supporting EM growth and .

So what's the takeaway? Allocate aggressively to . This isn't a speculative bet-it's a calculated move backed by a steepening yield curve, a , and that outshine developed markets. As bond investors shift toward intermediate-term durations to balance risk, EM local debt offers the perfect blend of income and growth.

In the end, the 1995 playbook is being rewritten. This time, the script favors those who dare to go local.