Emerging markets are back in the spotlight for Australian investors, and the Emerging Markets Bond Index (EMBI) is a key reason why. As global interest rate cycles shift and geopolitical tensions reshape capital flows, the EMBI’s role as a benchmark for sovereign debt in developing economies is more crucial—and more dynamic—than ever in 2025.

What Is the Emerging Markets Bond Index (EMBI)?

The Emerging Markets Bond Index (EMBI), created by J.P. Morgan, is a widely referenced benchmark that tracks the total returns for US dollar-denominated sovereign bonds issued by emerging market countries. The EMBI includes both investment grade and high-yield (junk-rated) bonds, giving investors a broad view of credit conditions and risk sentiment across the developing world.

Coverage: 70+ countries, spanning Latin America, Asia, Eastern Europe, Africa, and the Middle East.
Variants: EMBI Global and EMBI Global Diversified, with the latter capping the weight of larger issuers to reduce concentration risk.
Components: Sovereign and quasi-sovereign bonds, typically with maturities greater than one year.

The EMBI is not just a yardstick; it’s the basis for billions of dollars in ETF and managed fund flows, with Australian super funds and institutional investors increasingly allocating to emerging markets for yield and diversification.

2025 Trends: Why the EMBI Matters More Than Ever

Several forces are making the EMBI particularly relevant for Australians in 2025:

Interest Rate Divergence: As the RBA holds rates steady and the US Federal Reserve signals possible cuts, capital is flowing into higher-yielding emerging market bonds, driving strong performance in EMBI-tracking funds.
Geopolitical Realignment: Countries such as India, Indonesia, and Brazil have seen credit outlook upgrades, while others—like Turkey and Egypt—are under increased scrutiny. The EMBI reflects these shifting risk profiles in real time.
Australian Super and ETF Demand: Major superannuation funds are boosting their allocations to EM debt, seeking returns not available in low-yielding developed markets. The launch of new ASX-listed ETFs tracking the EMBI Global Diversified Index in late 2024 has made access easier for retail investors.
Currency Hedging: With the AUD/USD exchange rate volatile in 2025, the EMBI’s US dollar denomination means Australian investors must consider currency risk and hedging strategies.

For example, the Vanguard Emerging Markets Government Bond ETF (VGE) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (IEMB) both saw inflows of over $500 million from Australian investors in the first half of 2025, reflecting a broader appetite for EM sovereign exposure.

Risks and Rewards: What Should Australians Watch?

While EMBI-tracking funds offer attractive yields (the EMBI’s average yield-to-maturity was 7.4% in May 2025), they come with unique risks:

Default Risk: Some EM issuers, such as Pakistan and Argentina, have flirted with default. Even with index diversification, defaults can drag on returns.
Liquidity: EM bond markets can be less liquid, leading to higher trading costs and volatility during global risk-off events.
Political and Policy Uncertainty: Sudden changes in fiscal or monetary policy, or election-related upheavals, can trigger sharp price moves.
Currency Exposure: While the EMBI covers USD-denominated debt, local currency moves still impact sovereign finances and investor sentiment.

Still, the EMBI’s long-term track record is compelling: Over the past decade, it’s outperformed many developed market bond benchmarks, thanks to both higher yields and periods of credit spread tightening. In 2025, as global investors hunt for yield and diversification, the index’s influence is only growing.

How to Access the EMBI: Options for Australian Investors

Australians can tap into EMBI exposure through a range of vehicles:

ASX-listed ETFs: Look for funds tracking the J.P. Morgan EMBI Global Diversified, such as IEMB and VGE, both of which offer transparent, liquid access to the index.
Active EM Bond Funds: Some managers blend EMBI holdings with local-currency or corporate EM debt for added yield or diversification.
Superannuation Funds: Many major super funds have dedicated EM debt allocations, often benchmarked to the EMBI, though with active risk management overlays.

With lower minimum investments and more competitive fees than ever before, retail investors have tools once reserved for institutional giants.

Conclusion: Should You Add EMBI to Your Portfolio in 2025?

The EMBI offers a gateway to global growth, diversification, and attractive yields—qualities in high demand as Australian investors look beyond traditional asset classes in 2025. But it’s not a set-and-forget option: understanding the index’s country mix, risk factors, and the impact of currency swings is critical. For those willing to do the homework, the EMBI could be a powerful addition to the modern Australian portfolio.