Local currency bonds in the new market are being tilted to beat their dollar-controlled peers, despite offering lower yields than the US Treasury Department.

Securities have had a top start to their dollar rivals since 2022, as global trade disruptions raise expectations for interest rate cuts in developing countries and cool inflation by pushing oil prices down. Meanwhile, dollar bonds are slowing performance as President Donald Trump’s tariff threats place emphasis on greenback.

“We are committed to providing a range of services that are important to us,” said Jon Harrison, managing director of EM macro strategy at GlobalData TS Lombard, London.

“The speed of the US economy, where there is a growing possibility of a recession, is bad for global growth, and this is likely to encourage EM central banks to lower interest rates,” he said.

Emerging market local currency bonds returned 3.2% this year, while dollar-induced peers earn just 0.7%, according to the Bloomberg Index.

Outperformance of local currency obligations has led to an unusual situation in which historically high-risk bonds are traded at lower yields than those sected in the dollar. The average yield of the local currency index fell to 4.03%, but 7.1% of the dollar-deducted gauges and 4.12% in the US Treasury Department.

One of the major driving forces for local currency bonds in recent weeks is the disruption that was caused by Trump’s “mutual tariffs” announcement on April 2, which has raised expectations that central banks will ease monetary policy.

The index of one-year interest swaps from 18 emerging economies fell by about 15 basis points in April alone, heading towards its biggest monthly decline since September, based on data compiled by Bloomberg.

“Increasing volatility”

Philip MacNicholas, an Asian sovereign strategist at Robeco in Singapore, said, “People the currency side of the region in a larger market,” giving us a greater means of expressing our views on currency, monetary policy, period and yield curves.

“The increasing volatility of the Treasury and US policies should infuse higher term premiums and reduce the appeal of the dollar, as they play,” he said. The term premium is when bond investors require compensation to take the risk that interest rates fluctuate over the life of security.

New local currency bonds could be further boosted as weak dollars strengthen the performance of developing countries. Bloomberg’s Dollar Spot Index fell nearly 4% in April, heading towards its fourth monthly decline.

“We’re looking forward to seeing you in the future,” said Mike Riddell, Fixed Income Portfolio Manager at Fidelity International in London. “Coupled with the long US dollar positioning, the rewind of the noble USD valuation will be a major multi-year tailwind for emerging markets.”

Decline in issuance

The worsening dollar outlook has made some bond issuers more cautious about selling their debts in US currencies.

Dollar bond issuances in emerging markets except China have dropped 36% so far in April compared to the same period a year ago, based on data compiled by Bloomberg.

Goldman Sachs Group Inc. is among those who say that EM local currency bonds should continue to pursue their peers.

“Faced with the fear of a recession, we believe that EM’s local fees are poised to outweigh other em assets,” analysts at Goldman Sachs, including Andrew Tilton and Kamakshya Trivedi, wrote in a research note released Thursday.

What to see

• Chinese banks will announce loan prime rates on Monday, while Bank Indonesia will determine rates on Wednesday
• Malaysia, Singapore and South Africa will publish inflation data.
• South Korea announces first quarter GDP, with investors calling for the economic impact of global tariff uncertainty

This story was originally featured on Fortune.com.