Where the (real) yield lies in CEE & CIS local currency bond markets

• Amid stretched hard currency valuations, local markets hold potential opportunities for yield seeking investors in 2025

• Armenia, Georgia, Uzbek and Kazakh have the most attractive real local yields in the region, but market access is varied

• In CEE, FX-hedged treasury yields are below eurobond yields, and the FX/rates backdrop looks challenging

  
  

We think that local currency debt in EM offers more compelling opportunities in 2025 against a backdrop of stretched hard currency valuations - a view we reiterated in our year ahead outlook for 2025.

The CEE/CIS region has a higher concentration of IG credits than the overall index, as reflected in the spread on a ten country CEE/CIS index composite (based on our calculations on a weighted basis) of 170bps being closer to the IG subindex (111bps) than the overall index (250bps). The spread on our CEE/CIS subindex is also amongst the tightest it has been since the onset of the war in Ukraine in early 2022, and the spread on an unweighted version of the subindex is just 16bps wide of its pre-war (2021 average) level.

With less compelling hard currency valuations, and recognising the lower concentration of higher-yielding hard currency opportunities in the CEE/CIS sovereign space to drive alpha generation, the region’s local currency markets potentially offer opportunities to investors searching for yield in 2025.