Emerging market governments are issuing foreign-currency bonds at a record pace this year, despite rising global interest rates, a stronger U.S. dollar, and the ongoing Iran war. A wave of new borrowing worth $10 billion this month has brought Saudi Arabia and Qatar back to the public dollar bond market for the first time since the conflict erupted, pushing total emerging market sovereign debt issuance so far in 2026 to roughly $200 billion. Turkey, Kazakhstan, and the Dominican Republic also have plans to sell dollar and euro bonds this week.

Data from the Institute of International Finance shows that in the eight months through August, emerging market governments issued a record $190 billion in bonds, surpassing the $160 billion recorded during the same period last year. Jonathan Fortun, senior economist at the Institute of International Finance, noted that the improvement in emerging markets' standing among investors has been building for some time and is not a fleeting 2025 phenomenon. He added that the asset class is now perceived as considerably safer than in the past.

The yield on the 10-year U.S. Treasury, the global benchmark for dollar borrowing costs, has climbed sharply this year to around 5%, potentially drawing capital away from riskier debt markets. Derivatives markets indicate that investors expect the Federal Reserve to hike rates by 25 basis points this month and follow with three more increases by mid-next year. Even so, the yield premium on emerging market foreign-currency bonds over U.S. Treasuries remains relatively subdued, with the JPMorgan benchmark index spread sitting near 2.2 percentage points, down from roughly 2.6 percentage points a year ago.

Investors point to robust global economic growth, even with high oil prices from the Iran war, as a key driver of demand for bonds issued by developing nations most tied to international trade. Yvette Babb, portfolio manager at William Blair Investment Management, noted that the global macro picture is highly resilient even for countries at the heart of the conflict, such as Egypt. She observed that asset owners have boosted their allocations to emerging markets, and emerging market debt managers continued to see capital inflows until last week.

Fortun highlighted that, of the total issuance this year, only $72 billion represents "new" money—meaning countries are raising additional capital from bondholders rather than refinancing maturing debt—reflecting rising interest costs as debt levels grow. About one-third of total issuance this year is denominated in euros, up from one-quarter in 2024, as nations shift to the euro to capture lower interest rates. Countries are also broadly seeking to diversify their currency exposure, exemplified by record yuan bond issuance this year.

This week, Qatar sold $3 billion in five-year and ten-year bonds with yields ranging from 5.3% to 5.5%, marking its first bond sale since a private placement in April during the wartime period. The sale follows a significant widening of the country's fiscal deficit. Oxford Economics, a consultancy, estimates that Qatar's fiscal deficit will reach 28% of GDP this year due to a sharp drop in liquefied natural gas revenue, as its key export route through the Strait of Hormuz is nearly closed because of the Iran war. Abdeslam Alaoui, head of capital markets for Central & Eastern Europe, Middle East and Africa at Deutsche Bank, said the Qatari bond issuance demonstrates both the depth of liquidity available to creditworthy issuers and investors' willingness to support new supply from the region amid geopolitical tensions.

Saudi Arabia, earlier this month, sold just over $3 billion in dollar-denominated Islamic bonds. Some countries are also turning to external debt to rebuild foreign exchange buffers depleted by soaring energy import bills this year, particularly across Asia, which is most reliant on Strait of Hormuz shipping. Pakistan, this month, raised $3 billion through five-year and ten-year bonds with yields between 7% and 8%, its largest ever dollar bond deal, following a private placement in April. The proceeds have lifted Pakistan's international reserves above the $20 billion mark, strengthening its ability to pay for energy imports and supporting its recently upgraded credit ratings.

According to investors, sovereign issuance from emerging markets shows little sign of being crowded out by this year's surge in artificial intelligence-related borrowing, even as developed bond markets fret over hyperscalers competing for capital. Analysts at Bank of America noted this month that, despite the unprecedented scale of planned hyperscaler borrowing, market evidence so far suggests the risk to emerging markets remains limited.