The rally in emerging market bonds is indeed fierce—after three consecutive years of gains in U.S. Treasuries, this year has even left them far behind.

The story behind the numbers is even more interesting. Last year, high-yield emerging market bonds outperformed U.S. Treasuries by 586 basis points. This year, in less than a month, that excess return has surged to 713 basis points, with an even sharper increase. Looking further back to 2023, the difference was only 195 basis points, and over three years, this gap has nearly quadrupled.

It's important to note that before this, emerging market bonds were battered by the pandemic and the Russia-Ukraine conflict. During that period, the market was in free fall, and investors dared not touch them. Now, they've truly climbed out of the trough.

Even more interesting is that investment-grade bonds are also starting to gain momentum. After two consecutive years of stagnation, they have reversed their downward trend this year and successfully surpassed U.S. Treasuries. However, there's a problem—new bond issuance is increasing, which means maintaining this significant lead will become much more difficult moving forward. While the short-term market looks good, to sustain this advantage in the long run, the market will need to accept enough positive news.