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Emerging-market investors turn more selective in inflation-linked local debt
The $886 billion EM debt market has returned 11.3% in 2026 for inflation-linked local-currency government bonds, but traders are shifting focus as inflation and central bank paths diverge.
LiveMint Markets reports emerging-market investors are becoming more selective after a strong rally in inflation-linked local-currency government debt, an $886 billion segment that has benefited from currency appreciation across developing countries.
The outlet says an index tracking inflation-linked EM local-currency government debt returned 11.3% in 2026 through Thursday, following its best year in more than a decade. That compares with a 1.5% gain for a broader local debt index and a 0.1% decline for the Bloomberg Global Aggregate Bond Index.
LiveMint Markets attributes the shift to persistent inflation worries and currency swings, alongside renewed price pressures, higher energy costs, and increasingly divergent central-bank policy paths. Traders are looking for next opportunities beyond the biggest markets, with mention of linkers in Chile, Poland, and Argentina after strong returns in Brazil and Mexico.
The report also highlights that inflation dynamics are uneven, with data releases showing prices accelerated more than expected in Argentina, India, South Africa, and Romania, while inflation has remained sticky in Brazil and Colombia. It cites Turkey's central bank revising its year-end inflation projection to 28% from 26% after recognizing a partial failure to meet CPI targets, and notes portfolio manager views including a preference for inflation-linked debt in Argentina but a move away from linkers in Brazil.