Paraguay's Inclusion in JPMorgan's GBI-EM Index: Implications for Emerging Market Investors

Paraguay's impending inclusion in JPMorgan's Global Bond Index-Emerging Markets (GBI-EM) in the first half of 2026 marks a pivotal moment for the country's capital markets and its integration into global financial systems. This development, driven by regulatory reforms and strategic bond issuances, is poised to catalyze capital inflows and reshape the dynamics of Paraguay's local bond market. For emerging market investors, the inclusion offers both opportunities and insights into the evolving landscape of frontier markets.

Capital Inflow Potential: A Structural Shift

Paraguay's inclusion in the GBI-EM Index is expected to attract a surge in foreign investment, as index-tracking funds and active managers adjust portfolios to include its local-currency sovereign bonds. The country's initial weighting of 0.04% in the index may seem modest, but it reflects a calculated approach to market integration. According to a report by ABC Bonos en guaraníes entrarán en índice de J.P. Morgan desde 2026, [https://www.abc.com.py/economia/2025/09/19/bonos-en-guaranies-entraran-en-indice-de-jp-morgan-desde-2026/]^[1], this inclusion follows the successful issuance of two Global PYG (guaraní) bonds in 2025, which met JPMorgan's stringent eligibility criteria for liquidity, accessibility, and market depth.

The Central Bank of Paraguay (BCP) has implemented critical reforms to facilitate this transition. These include expanding foreign exchange transaction limits for investors, modernizing the Asunción Stock Exchange's trading platform, and enhancing hedging mechanisms to mitigate currency risks Paraguay's capital markets opens up to the world with key reforms, [https://blogs.worldbank.org/en/latinamerica/paraguay-capital-markets-reform]^[2]. As a result, foreign participation in Paraguay's local bond market has already risen from 1.7% in 2023 to 5.0% in 2024 Paraguay's capital markets opens up to the world with key reforms, [https://blogs.worldbank.org/en/latinamerica/paraguay-capital-markets-reform]^[3], a trend expected to accelerate post-inclusion.

Data from the World Bank highlights that these reforms have improved market liquidity and transparency, making Paraguayan bonds more attractive to international investors Paraguay's capital markets opens up to the world with key reforms, [https://blogs.worldbank.org/en/latinamerica/paraguay-capital-markets-reform]^[4]. Furthermore, Paraguay's investment-grade credit rating (Baa3 from Moody's, upgraded in July 2024) has bolstered confidence, enabling the government to issue a $1.2 billion sovereign bond in March 2025 at competitive rates Paraguay Makes Historic Bond Issuance After Achieving, [https://www.riotimesonline.com/paraguay-makes-historic-bond-issuance-after-achieving-investment-grade-status/]^[5]. This successful issuance—comprising 30-year and 10-year tranches—demonstrates robust global demand and signals Paraguay's growing credibility in capital markets.

Local Bond Market Development: A Foundation for Growth

Paraguay's local bond market has undergone significant structural improvements to meet international standards. The BCP's December 2024 regulatory overhaul streamlined the issuance, custody, and trading of public debt securities, while the Caja de Valores de Paraguay (CAVAPY) launched a modernized digital platform to enhance transparency and investor control JP Morgan incluye bonos del Gobierno paraguayo en índice de mercados emergentes, [https://www.lanacion.com.py/negocios/2025/09/19/jp-morgan-incluye-bonos-del-gobierno-paraguayo-en-indice-de-mercados-emergentes/]^[6]. These changes align with broader efforts to diversify financing sources and reduce reliance on dollar-denominated debt.

The government's strategy to issue more bonds in guaraníes is a key component of its desdolarización agenda. By reducing currency risk exposure, Paraguay aims to attract long-term investors seeking stable, inflation-linked returns. As noted by La Nación JP Morgan incluye bonos del Gobierno paraguayo en índice de mercados emergentes, [https://www.lanacion.com.py/negocios/2025/09/19/jp-morgan-incluye-bonos-del-gobierno-paraguayo-en-indice-de-mercados-emergentes/]^[7], the inclusion in the GBI-EM Index will further amplify this effect, as index-driven demand compels fund managers to allocate capital to Paraguayan bonds. This, in turn, is expected to lower domestic financing costs and free up fiscal resources for infrastructure and green energy projects.

However, challenges remain. While foreign investor participation has grown, it still lags behind the emerging market average of 14% Paraguay's capital markets opens up to the world with key reforms, [https://blogs.worldbank.org/en/latinamerica/paraguay-capital-markets-reform]^[3]. Paraguay's market depth and secondary trading liquidity must continue to improve to sustain investor interest. The government's focus on extending debt maturities and maintaining fiscal discipline—key factors in Moody's recent rating upgrade—will be critical in this regard Paraguay Makes Historic Bond Issuance After Achieving, [https://www.riotimesonline.com/paraguay-makes-historic-bond-issuance-after-achieving-investment-grade-status/]^[5].

Implications for Investors

For emerging market investors, Paraguay's inclusion in the GBI-EM Index represents a strategic opportunity to diversify portfolios with a high-growth, low-correlation asset. The country's combination of regulatory reforms, creditworthiness, and underpenetrated markets offers a compelling risk-reward profile. However, investors must remain mindful of macroeconomic risks, including regional trade dynamics and global interest rate trends.

The Institute of International Finance (IIF) projects $71 billion in capital inflows to emerging markets in 2025, with frontier markets like Paraguay likely to capture a growing share Capital Flows to Emerging Market Economies - IIF, [https://www.iif.com/Products/Capital-Flows]^[8]. As Paraguay's local bond market matures, it could serve as a model for other frontier economies seeking to integrate into global capital markets.

Conclusion

Paraguay's inclusion in the GBI-EM Index is more than a symbolic milestone—it is a testament to the country's commitment to financial modernization and openness. By attracting foreign capital and reducing borrowing costs, this inclusion will likely accelerate Paraguay's economic transformation. For investors, the key takeaway is clear: Paraguay's local bond market, now on the global radar, offers a unique window into a frontier economy poised for growth.