A manager's insights: 12 years’ investing in frontier bonds

Our philosophy is the same today as when we started: frontier bonds offer high yields and diversification benefits across a range of assets, with a low correlation to US Treasuries. 

Over the past 12 years, we've experienced our share of ups and downs. Overall, though, it's been a rewarding journey – demonstrating our ability to navigate this complex asset class.

The case for frontier bonds

Investing in a dedicated frontier fund allows you to potentially capture a range of diversification opportunities in bonds issued by countries, governments, and other bodies in 40-45 countries – typically offering the highest yields in emerging markets (EM). We believe this compares favourably with general EM bond funds, which will usually provide around 25% exposure to frontier bonds and little, if any, exposure to local-currency bonds [1].

We've always emphasised that frontier bond returns are largely driven by idiosyncratic factors. The past three years (December 2022 to December 2025) exemplify this. The widely followed J.P. Morgan NEXGEM Index has returned 17.4% per annum, with Pakistan, El Salvador and Sri Lanka the top performers. Over the same period, US Treasury yields have risen from 3.9% to 4.2%, reinforcing the low correlation with frontier bonds [2]. 

When we launched in 2013, there was a reasonable argument that frontier issuance was limited and only a handful of managers had the expertise to navigate the market.

That narrative has shifted. Frontier issuance has increased over the period, and yield curves have extended out to 30 years [3]. This was partly driven by low developed-market yields, which saw yield-hungry investors look overseas for income. Improving fundamentals and growing familiarity with the asset class have also stoked stronger investor appetite for frontier bonds.

Over the last few years – following the external shocks of Covid and the full-scale invasion of Ukraine – frontier issuers have largely regained market access. Combined with narrower fiscal deficits, stable debt levels and continued access to concessional financing, default risk has significantly reduced. This year, Egypt and Nigeria face sizeable bond maturities, but both countries are well placed to service their obligations.

Credit quality has also improved over the last three years, and the market has recognised the progress made by issuers – with most frontier bond yields now firmly within single-digit territory, as evidenced by J.P. Morgan NEXGEM data. In recent months, smaller issuers – including the Republic of Congo, Cameroon and Suriname – have returned to the eurobond market.

What's the outlook for frontier bonds?

Frontier bonds offer yields that, while low by historic standards, remain above almost any other part of the bond market. In a world where debt levels across frontier markets are falling and fiscal consolidation remains on track, there’s a strong case for allocating to an asset class with resilient long-term performance potential.

We’re also seeing the relatively new phenomenon of frontier local-currency markets. As spreads have tightened, attention has turned to local markets such as Pakistan, Nigeria and Egypt. We have previously highlighted the need for reforms to repair these broken markets, including monetary-policy normalisation and foreign-exchange devaluation.

In most cases, countries have enacted those much-needed reforms. As a result, nominal and real yields are high, and currencies are no longer viewed as overvalued.

That's not to downplay the risks. There will be credit events in the coming years. However, managers with the necessary research capabilities, in-depth processes and legal expertise should not only be able to navigate these choppy waters – but thrive.

Final thoughts…

After over a decade of evolution, frontier markets appear to be entering a more stable, better balanced phase. For investors seeking diversification and high-income potential within EM, frontier bonds offer an opportunity that is increasingly hard to ignore.

The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide for future results.

Investing in frontier markets involves a greater risk of loss than investing in more developed markets due to, among other factors, greater political, tax, economic, foreign exchange, liquidity, and regulatory risks.

1 Source: Aberdeen Investments February 2026

2 Source: JP Morgan February 2026

3 Source: Bloomberg February 2026