In the recent debate over so-called “Sell America” trading and the exodus of capital from U.S. markets, foreign stocks have received most of the attention. But international bonds, especially emerging market bonds, were also on the rise.
“The best-performing area of fixed income year to date and last year has been emerging markets,” Joanna Gallegos, co-founder of fixed income ETF firm BondBloxx, said on CNBC’s “ETF Edge” this week.
As an example, the iShares JPMorgan USD Emerging Markets Bond ETF (EMB) achieved a return of over 13% in 2025. BondBloxx’s JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) posted a similar return in 2025.
weakness in the US dollarsConcerns about U.S. financial health at a time of high spending and deficits and the investment impact of President Trump’s foreign policy, as well as recent performance trends, are all contributing to increasing investor interest in international diversification.
But for Gallegos, it starts with currency and performance chasing rather than a view that the U.S. is losing popularity as a market. “The pressure on the dollar is putting more focus on assets outside the U.S.,” Gallegos said. “I think people are just looking at last year’s returns and, more than anything, they’re looking for a way to take advantage of those opportunities,” she said. “US trade is not going away,” she added.
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The performance of the iShares JPMorgan USD Emerging Markets Bond ETF compared to the iShares Core US Aggregate Bond ETF over the last five years.
Morningstar data for January supports the view that U.S. investors are not abandoning the domestic market, whether it is stocks or bonds under discussion, and even as more assets move offshore.
According to Morningstar, U.S. market ETFs brought in an estimated $156 billion in net inflows in January, which was the best January ever. But investors also added $51 billion in positive net inflows into international equity ETFs, setting a monthly record for the category. And taxable bond ETFs boomed with $46 billion in net investor inflows for the month, led by the Vanguard Total Bond Market ETF (BND) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT).
Despite fears of a private credit bubble, the U.S. continues to offer “the strongest bond market” and “the greatest opportunity for the world to continue investing in it,” according to Gallegos.
Investors are expanding their portfolios and exploring new sources of return while maintaining a focus on U.S. assets. “I think we still see a robust economy,” Gallegos said, citing stable earnings and a strong corporate balance sheet. In the bond market in particular, she said, “the yield curve appears to be steepening and behaving appropriately, with interest rates at the long end higher than interest rates at the short end.”
Todd Sohn, technical strategist at Strategas Securities, said on “ETF Edge” that the magnitude of the potential changes on the fixed-income side of the portfolio is even greater than what’s happening in equity investments, but it’s not necessarily an international story. In recent years, money market funds dominated capital flows while “trillions of assets” remained on the sidelines as cash accounts generated decent returns without risk. But as central bank interest rates begin to fall, Sohn says more capital will flow into credit markets and bonds. “This money will be used for fixed income products,” he said.
Gallegos says investors no longer have to work as hard to earn returns. She highlighted investment-grade bonds and, in particular, investors taking the opportunity to “move out of the interest rate spectrum to BBB,” where yields are higher but default risk remains historically low. And she emphasized that bonds are no longer just a defensive tool. “Bonds are not only necessarily the safety part of your portfolio, but also the opportunity and the return,” Gallegos said.
Top bond ETFs by asset
- Vanguard Total Bond Market ETF (BND)
- iShares Core US Aggregate Bond ETF (AGG)
- Vanguard Total International Bond ETF (BNDX)
- iShares 0-3 Month Treasury Bond ETF (SGOV)
- Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
Source: VettaFi