Investors have been stacking up emerging market bonds due to “reciprocal” tariffs by U.S. President Donald Trump.

According to the latest data provided by JPMorgan, local currency bonds in emerging markets fell 13 basis points between April 2 (Trump announced tariffs) and April 25. In contrast, the benchmark treasury output in the same period rose by more than 7 basis points.

"We're seeing it collecting it into fixed income assets in emerging markets," said Carol Lye, Portfolio manager at Brandywine Global Investment Management.

Since these bonds are priced in local currencies, purchases by overseas investors will also increase demand for local currencies.

"The real rate of return is still very high. So the advanced rate of return makes us there (emerging markets), and the currency also benefits from the US dollar's transition," Ley said.

"It's an effort by investors to keep it away from the U.S. market, especially local investors," said Mark Mobius, president of the Mobius Emerging Opportunity Foundation. He added that due to their exposure to local currencies, domestic investors in emerging markets are likely to be among those who have moved from the U.S. Treasury to these fixed income assets.

Experts say the U.S. Treasury sell-off is also eager to move towards alternative safe assets such as euro bonds and Japanese government bonds, but given that they are developed markets, the rotation is not an anomaly.

Brandywine's Lye said it was surprised by emerging market investors that the general narrative and expectation they "will not stick to the upcoming U.S. recession."

“I think a lot of people are proven wrong because they are (sticking).” She said, adding that there is enough fiscal buffer and monetary space, some of which can offset the focus of growth.

Other market observers point out that the fixed income of emerging market local currencies tends to be better than other peer trends when green is under pressure.

“In a market environment where the dollar is weak, commodity prices are lower and global interest rates, the fixed income of EM local currency tends to outweigh most other fixed income assets,” said Tadas Gedminas, vice president of Global Emerging Markets Research Team at Investment Bank.

Investors, especially U.S. investors, are starting to look at emerging markets through a "new lens," said Paul Benson, head of systemic fixed income at Insight Investment.

Benson said in the past, when U.S. investors tried to invest overseas in emerging market bonds, they often lost money once the dollar strengthened. One dollar of dollars shrinks profits from investment in other currencies.

"But the 2025 sturm und drang finally turned around," he said, adding that the relative performance of U.S. risky assets, even typical safe harbors, such as the Green Guard and the Treasury Department, also made domestic investors interested in opportunities for their possible disappearance.

Aberdeen Investment Fixed Income Viktor Szabó said that although he likes emerging market local currency bonds, it is still "early" to determine exactly where global investors rotate their bond positions. Aberdeen also pointed out that some investors have not withdrawn from our sovereign debts, but have changed from long-term bonds to short-term bonds such as the 2-year Treasury.

In the days following Trump’s April 2 tariffs, the U.S. fiscal yields fell for two years, while the 30-year treasury yield peaked in more than 30 basis points in a week. The benchmark 10-year yield also increased by 30 basis points.

“We have been living in a world where the U.S. Treasury is the ultimate safe asset for a long time, and if that idea changes, many investors will have to completely rethink their asset allocation,” Benson said.