Amidst a global bond selloff and increasing geopolitical tensions, Thomas Christiansen (pictured), head of emerging markets fixed income at Swiss private bank Union Bancaire Privée, outlines the case for frontier markets and emerging market debt as an asset class in 2026.

Investors’ concerns over issues such as inflation, government deficits, and competition from corporate bonds are driving a global bond market selloff. However, emerging market debt has generally been outperforming traditional developed market (DM) global bonds this year, driven by higher yields and stronger economic fundamentals.

With credit spreads tight and investors searching for attractive sources of income and diversification, frontier markets are coming to the fore. In particular, local currency debt is emerging as an undervalued and overlooked opportunity, supported by improving policy credibility, attractive real yields and the potential to generate returns that are less correlated with developed market fixed income.

Thomas Christiansen (pictured), head of emerging markets fixed income at Swiss private bank Union Bancaire Privée, remains constructive on emerging market fundamentals and frontier markets. “Our view hasn’t changed that drastically over the past year,” Christiansen told this news service in an interview last week. “Fundamentals are in a very strong place for emerging markets.”

He looks for opportunities where he can get the best carry, particularly the best carry for the lowest level of volatility. “This tends to be found in local frontier markets where there are relatively high real rates most of the time. That remains the case today,” he said. Christiansen looks at these markets where there are double digits, maybe even above 20 per cent nominal yields, with inflation in the teens and that gives a very nice cushion to override potential stress episodes. “In terms of risks, these markets tend to be relatively uncorrelated to global markets. Most local frontier markets tend to be driven by local developments,” he continued. “So if there is a nominal interest rate of 22 per cent and the US Federal Reserve hikes rates by 25 basis points it doesn’t really make the interest rate differential any different. The impact is so much smaller,” he continued. “In other countries like the G7 that have rates of 2 to 4 per cent or other more developed emerging market countries with 5 to 6 per cent, if the Fed hikes rates, the rate differential gets quite impacted.”

“Frontier markets are much more driven by domestic factors but we still manage these local frontier currencies very actively in case there is a risk particularly on the exchange rate side,” Christiansen said. ”For instance, in our UBAM – Emerging Markets Frontier Bond, we had a position in Egypt in February of about 5 per cent. As we saw a risk of a conflict in the Middle East increasing, we cut that position quite aggressively to 1.5 per cent as a risk management exercise,” he continued. “We did see a peak-trough sell off. We scaled back into the trade in March to a 3.5 per cent position. The Egyptian pound is now about 8 per cent stronger and it’s a place where nominal interest rates are above 20 per cent. So that’s a place that we managed quite actively.” 

“A number of frontier market currencies are doing quite well this year that are less exposed to some of these factors, such as the Kazakh Tenge and Zambian kwacha. These are currencies that offer relatively good carry for low levels of volatility.

“Frontier markets have outperformed this year due to a high level of carry. Investors are more comfortable with frontier markets. Yields are higher than developed markets and they are less affected by the Middle East conflict, being driven by local factors," Christiansen said.

He is positive about the outlook for these countries but he doesn’t expect the same level of returns this year as he saw last year.

UBAM – Emerging Markets Frontier Bond
Christiansen co-manages the Luxembourg-domiciled UBAM – Emerging Markets Frontier Bond which has been performing well, up 9 per cent this year and delivering returns of 12 per cent. It covers 50+ frontier markets, with top countries including Nigeria, Angola, Argentina, Egypt, Benin, Paraguay, and Cote D'Ivoire. The strategy combines hard and local currency exposures to enhance carry and reduce volatility. Top holdings include the Development Bank of Kazakhstan, the Argentina Republic of Government, Cameroon, Benin, Paraguay Republic of Government, and the Republic of Uzbekistan.

His views are shared by other wealth managers. Dario Messi, head of fixed income analyst at Swiss private bank Julius Baer and Mark Haefele, chief investment officer at [tagUBS Global Wealth Management">UBS Global Wealth Management, for instance, are also positive about emerging markets. “Emerging markets remain a preferred allocation, as resilient growth, improved policy credibility, and healthier external balances support the asset class. Selectivity remains essential, but attractive income and diversification benefits strengthen the case for exposure,” Messi said in a note this week. He highlighted that they continue to demonstrate resilience, and AI-driven debt issuance is creating opportunities rather than being a broad threat to credit spreads.

“For investors seeking more diversified income approaches, select exposure to emerging market and high yield credit can be considered, alongside equity income and yield-generating structured investment strategies,” Haefele added.