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Taking a hard look at hard currency EMD

May 21, 2026|iShares Fixed Income Product Strategy

In May’s Asia FIX, we look at Hard Currency Emerging Markets Debt (EMD) as a way investors can position defensively against geopolitical uncertainty.

Alongside BlackRock’s preference for Hard Currency Emerging Markets Debt, the Middle East conflict has seen the asset class emerge as one way investors can position defensively against the geopolitical uncertainty.

Market focus has increasingly shifted towards identifying the likely winners and losers of energy shock, with outcomes expected to be shaped by energy import dependence. In the current environment, hard currency EMD could offer relative resilience and a degree of insulation from the supply disruption, supported by its meaningful exposure to Latam commodity exporters, which stand to benefit from higher energy prices.

The evolving landscape of hard currency EMD

Beyond the tactical case for the asset class amidst the geopolitical uncertainty, structural shifts in recent years have also seen hard currency EMD evolve into an exposure better positioned for today’s backdrop.

  1. A lower duration exposure – from its peak of nearly 9 years in 2020, the duration profile of the exposure has since declined to near two-decade lows of less than 7 years (Figure 1). Paired with over 6% in yields, the exposure offers attractive carry and income potential alongside lower interest rate sensitivity today.
  2. Increasingly higher quality – stronger EM fundamentals owing to improving fiscal and monetary policy in the EM space has seen a rise in the credit quality of the exposure, backed by a wave of sovereign rating upgrades especially among high yield countries, and fewer number of downgrades (Figure 2).
Lower duration contribution across regions driving overall decline in duration
Improving credit quality driven by upgrades concentrated in EM high yield

The hard currency EMD ETF toolkit

Today, the ETF wrapper offers access not only to flagship hard currency EMD exposures, but increasingly varying ways to slice and dice within the universe across sectors and rating buckets, as well as actively managed solutions with the objective of maximizing total return.

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A hard look at hard currency EMD

May 2026

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