Why Foreign Bonds Are Winning in 2025

A Major Shift in the Bond Market

In 2025, foreign bonds are stealing the spotlight. They are outperforming US bonds by a significant margin. This isn't just a minor victory—it's a big deal.

Emerging Market Bonds Lead the Way

• Emerging market bonds are up by 17.5% this year.
• This gain is more than double that of the US benchmark bond.

Even the weakest group of foreign bonds—government bonds from developed countries outside the US—are still ahead of the US benchmark.

Why Is This Happening?

1. Weak US Dollar

• The US dollar has dropped by more than 9% this year.
• A weaker dollar makes foreign bonds more attractive to US investors.

2. Federal Reserve's Interest Rate Cuts

• The Federal Reserve has been cutting interest rates.
• This makes US bonds less appealing.
• Foreign bonds offer higher yields, drawing investors overseas.

3. US Economic Concerns

• The US has big budget deficits and a lot of debt.
• Investors are seeking safer options and diversification.
• Foreign bonds provide both.

4. Political and Trade Uncertainty

• There is pressure on the Federal Reserve, raising questions about its independence.
• Investors are worried about inflation and the Fed's ability to control it.
• US tariffs are making trade less attractive, reducing demand for the US dollar.
• A weaker dollar means foreign bonds are more valuable.

Global Central Banks and the US Dollar

Central banks around the world have their own agendas, but one thing is clear:

The US dollar is weak—and that's good news for foreign bonds.