Twelve years investing in frontier bonds
A look back at what we’ve learned – and where we believe frontier markets are heading.
Duration: 4 Mins
Date: Mar 05, 2026
And over these past 12 years, we have managed the volatility and challenges inherent to frontier bonds to achieve our investment objectives. Our philosophy remains unchanged: we believe frontier bonds offer attractive yields and diversification opportunities, while maintaining a low correlation to US Treasuries.
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).1 We believe this compares favorably with general EM bond funds, which will usually provide around 25% exposure to frontier bonds and little, if any, exposure to local-currency bonds.
We've always emphasized that frontier bond returns are largely driven by idiosyncratic factors. The past three years (December 2023 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.2,3 Over the same period, US Treasury yields have risen from 3.9% to 4.2%, reinforcing the low correlation with frontier bonds.4
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 since shifted.
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 since shifted.
Frontier issuance has increased over the period, and yield curves have extended out to 30 years. 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, however, we believe both countries are well placed to service their obligations.
Credit quality has also improved over the last three years, and the market has recognized the progress made by issuers – with most frontier bond yields now firmly within single-digit territory, as evidenced by J.P. Morgan NEXGEM data.2,3 In recent months, smaller issuers – including the Republic of Congo, Cameroon, and Suriname – have returned to the Eurobond market.
The outlook for frontier bonds
Frontier bonds continue to 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 impressive long-term performance potential.
We’re also seeing the relatively new phenomenon of frontier local-currency markets.
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 normalization 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, mangers 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, we believe frontier markets are entering a more stable, better-balanced phase. For investors seeking diversification and high-income potential within EM, frontier bonds offer an opportunity that is becoming hard to ignore.[1]
Endnotes
1 Diversification does not ensure a profit or protect against a loss in a declining market.
2 The J.P. Morgan Next Generation Markets Index (NEXGEM℠) is a fixed income benchmark that provides exposure to non-investment grade rated, smaller, less liquid population of emerging market economies.
3 J.P. Morgan NEXGEM Index, December 2025.
4 "Market Yield on U.S. Treasury Securities." FRED, December 2023 to December 2025. https://fred.stlouisfed.org/series/DGS10/.
Important information
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
AA-270226-204910-1
