Foreign stocks have received most of the attention in recent discussions about so-called “Sell America” trade and the rotation of capital out of the U.S. market. But international bonds, especially emerging market bonds, are also rising in value.
“The best performers in fixed income so far this year and last year have been emerging markets,” Joanna Gallegos, co-founder of bond ETF firm BondBloxx, told CNBC’s “ETF Edge” this week.
As an example, the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) returned more than 13% in 2025. BondBloxx’s JPMorgan USD Emerging Markets Bond 1-10 Year Bond ETF (XEMD) posted similar returns in 2025.
A weaker U.S. dollar, concerns about the U.S.’s fiscal health amid high spending and budget deficits, the impact of President Trump’s foreign policy on investment, and recent business trends have all fueled investor interest in international diversification.
But for Gallegos, it starts with tracking the currency and performance, not the view that the U.S. is losing favor as a market. “Dollar pressure has increased our view of non-U.S. assets,” Gallegos said. “I think people are just looking at the gains from last year and looking for ways to take advantage of that opportunity more than anything,” she said. “U.S. trade is not going away,” she added.
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The performance of the iShares JP Morgan USD Emerging Markets Bond ETF and the iShares Core US Aggregate Bond ETF over the past five years.
Morningstar’s January data supports the view that U.S. investors are not abandoning the domestic market, even as stocks or bonds are being debated and more assets are moved overseas.
Net inflows into U.S. ETFs in January were estimated at $156 billion, the highest ever for the month, according to Morningstar. But investors also added $51 billion in net positive inflows to international equity ETFs, a monthly record for the category. Taxable bond ETFs also soared, with net investor inflows of $46 billion for the month, led by the Vanguard Total Bond Market ETF (BND) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT).
Despite concerns about a private credit bubble, the United States continues to offer “the strongest bond market” and “the greatest opportunity for the world to continue investing in bond markets,” according to Gallegos.
Investors are expanding their portfolios and adding new sources of income while keeping US assets at the core. “I think the economy remains resilient,” Gallegos said, pointing to stable earnings and strong corporate balance sheets. Regarding the bond market in particular, “the yield curve appears to be steepening and behaving well, with long-term rates higher than short-term rates,” he said.
Todd Thorne, technical strategist at Strategas Securities, said on “ETF Edge” that the potential change on the fixed income side of the portfolio is even larger than what’s happening in equity assets, but it’s not necessarily an international first. For the past few years, “trillions of assets” have been sidelined as money market funds have dominated the flow of money and cash accounts have generated decent returns without the risk. But when central bank interest rates start to fall, more capital flows into credit markets and bonds, Song said. “That money will be directed into fixed income products,” he said.
Mr. Gallegos says investors no longer need to push themselves so hard for yield. He emphasized that investment-grade credit, in particular, sees an opportunity for investors to “move down the interest rate spectrum toward the BBB,” where yields are higher but default risk remains historically low. And she emphasized that bonds are no longer just a means of defense. “Bonds aren’t necessarily just a safe part of a portfolio, they’re also a source of opportunity and income,” Gallegos said.
Top bond ETFs by asset
Vanguard Total Bond Market ETF (BND)iShares Core U.S. Aggregate Bond ETF (AGG)Vanguard Total International Bond ETF (BNDX)iShares 0-3 Month Government Bond ETF (SGOV)Vanguard Intermediate Term Corporate Bond ETF (VCIT)
Source: VettaFi
