Legg Mason fixed-income managers Brandywine Global and Western Asset both currently see attractive potential for income and long-term total return in emerging market debt with select emerging markets seen as fertile ground for identifying securities that are mispriced relative to underlying long-term fundamentals.


Emerging Markets global output has increased from 20% to 40% over the last three decades

High real rates and wide spreads point to potential opportunity


Higher Yields

Nominal and real yields available in emerging markets compare favorably to the still low rates available in most developed markets, presenting an opportunity to enhance portfolio income and/or participate in price appreciation if yields decline relative to inflation.


Real and Nominal 10-Year Sovereign Bond Yields

Based on 12-Month % Change of CPI

Source: Macrobond, as of 6/30/18. Past performance is no guarantee of future results.  This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. 

The nominal yield is the amount of income earned from a fixed income security divided by the security's par value, expressed as a percentage.

Real yields are calculated by adjusting stated yields to compensate for inflation expectations over the time period during which the yields are expected to be paid.

Consumer Price Indexes (CPI) measures the average change in consumer prices over time in a fixed market basket of goods and services.


Wider Spreads

Spreads are higher than what prevailed earlier in the year and notably above levels prior to the economic crisis, which suggests the potential for spreads to tighten if current headwinds prove temporary.



JPMorgan Emerging Markets Bond Index (EMBI) Plus Sovereign Spread to Comparable US Treasuries


Source: Bloomberg, as of 7/31/18. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. The JPMorgan Emerging Markets Bond Index Plus is a total return index that tracks the traded market for U.S. dollar-denominated Brady and other similar sovereign restructured bonds traded in the emerging markets.

A spread is the difference in yield between two different types of fixed income securities with similar maturities.

A basis point (bps) is one one-hundredth of one percent (1/100% or 0.01%).

Investment risks:
Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. High yield bonds are subject to greater price volatility, illiquidity, and possibility of default.



Featured Resources
  • EM Debt: High-Conviction Strategy
    Despite the market spillover from developed market rate volatility, Western Asset does not view the recent market rout as a sufficient basis to steer away from emerging market debt (EMD).
  • Emerging Markets: Crisis or Opportunity?
    As long-term value investors, Brandywine Global sees value in the emerging market space, but it anticipates short-term volatility.
  • Developed, Emerging Yields: Different Apples Part 1
  • Developed, Emerging Yields: Different Apples Part 2
    Brandywine Global explains current valuations, thematic factors, their point of view, and some of the risks.

Legg Mason offers numerous actively managed investment choices that provide different levels of exposure to emerging markets debt



Investment Process Summary 


Brandywine Global

Our approach is to seek undervalued assets globally by utilizing a top-down macroeconomic framework and a value-driven process. Real yield is our primary measure of value in the global bond market. We also actively manage our currency exposures and focus on owning undervalued currencies with the potential for appreciation. We hedge currencies that we believe are overvalued or pose downside risk. We structure our portfolios along macroeconomic themes involving business cycle analysis, inflation trends, monetary policies and political risk. We typically concentrate investments in the 10 to 15 countries that we find most attractive.

Western Asset

We believe we can identify and capitalize on markets and securities that are priced below fundamental fair value. We do this through disciplined and rigorous analysis, comparing prices to the fundamental fair values estimated by our macroeconomic and credit research teams around the globe. The greater the difference between our view of fair value and markets’ pricing, the bigger the potential value opportunity. The greater the degree of confidence in our view of fundamentals, the greater the emphasis of the strategies in our portfolios. We seek to diversify investments and add value across interest rate duration, yield curve, sector allocation, security selection, and country and currency strategies. We deploy multiple diversified strategies that benefit in different environments so no one strategy dominates performance, helping to dampen volatility.


Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

Sovereign debt refers to bonds issued by a national government in a foreign currency, in order to finance the issuing country's growth. Sovereign debt is generally a riskier investment when it comes from a developing country, and a safer investment when it comes from a developed country