It's been a helter skelter kind of year for the global economy. China unexpectedly became a major oil power player, the yen carry trade is facing a reckoning, and water levels in the Panama Canal are so low that it's disrupting global shipping. So, it should be no surprise that an unusual pattern is emerging in the debt markets: Developed market bonds are starting to act like their emerging market counterparts. If you want to understand how exactly this role reversal came to be, keep reading. I also sat down with Michael Lohan, the head of Ireland's foreign direct investment agency, to get his thoughts about how Ireland is weathering the current trade upheaval. And don't miss the sudden demise of the Mexican "super peso." Mentioned in this newsletter: FTSE G7 and EMU government bond index, Thomas Haugaard, VanEck J.P. Morgan EM Local Currency Bond ETF, Eric Fine, CEO of IDA Ireland Michael Lohan, Mexico's Peso, Flávio Bolsonaro, XP. You can subscribe to Barron's Global Signals here.

📈 EMs are the new DMs

The turmoil roiling developed-market bonds has seemingly taken no prisoners. Yields for several G7 countries' sovereign debt have reached their highest levels in two decades this year, weighing on equity performance across the world's biggest markets and pushing up government borrowing costs to worrisome levels. That volatility within the world's richest countries is unusual, and aligns more with how emerging markets have historically traded. Ironically, EMs are doing a much better job of weathering the storm.

While the FTSE G7 and EMU government bond index, which follows fixed income assets in developed markets, is down 4.9% this year, the VanEck J.P. Morgan EM Local Currency Bond ETF is up 0.2%. Credit spreads across EMs reached historically low levels earlier this year, and while they have since ticked up, they remain tight. Spreads are the extra yield a given bond pays over a risk-free benchmark bond (say, a U.S. Treasury). If EM spreads are tight, it means investors view EM bonds as lower risk, and accept a smaller premium to hold the bond.

"It's very clear that EM is behaving differently than in the past, and EM is holding up better than expected," said Thomas Haugaard, emerging market fixed income portfolio manager at global asset management group Janus Hendersen.

There are a few reasons for this new EM era, according to Haugaard. Many emerging economies have seen "massive fundamental improvements" to their fiscal health, resulting in a flurry of credit upgrades and in many cases, lower debt levels than many developed economies, he says. For instance, countries like Argentina, South Africa, and Egypt have undergone large fiscal austerity programs, and have since seen declines in risk premiums assigned to their bonds. That policy discipline has often translated to more credibility in local central banks, many of which beat the Federal Reserve to raising interest rates this year and now have more flexibility to lower them. Local financial markets have also matured across several EMs, reducing governments' dependence on foreign investors and making sovereign bonds less sensitive to exchange-rate swings.

Of course, neither emerging or developed markets are a monolith, and debt is a global problem. In the developed world, France's fiscal situation is in more precarious shape than Germany or even Italy. And some emerging markets, like Brazil, Colombia, Poland, and Hungary, have large budget deficits and debt levels that leave them vulnerable to a bond market backlash and higher yields if governments don't tighten their belts, writes William Jackson, chief emerging markets economist at Capital Economics.

"EMs have good fishing grounds, but not all of them are good fishing grounds," says Eric Fine, portfolio manager and head of active EM debt at VanEck.

In other words, investors can't just cast their net in EM and expect to reel in a great catch. But the potential for solid returns -- especially given the broader uncertainty surrounding G7 bonds -- is certainly making the option more appealing. Plus, the ratios of debt to GDP are currently lower in emerging markets than developed markets. That means it's more likely capital once earmarked for DMs will make its way to a more fiscally prudent emerging economy, Haugaard adds.

For most investors, the easiest way to get exposure to EM bonds is through exchange-traded funds. These often fall into two categories: hard currency ETFs, which are denominated in dollars, and local currency ETFs. Hard currency ETFs, like the iShares J.P. Morgan USD Emerging Markets Bond ETF $(EMB)$, are a good bet for investors seeking exposure to sovereign credit without foreign exchange volatility. Meanwhile, local currency ETFs, like the VanEck J.P. Morgan EM Local Currency Bond ETF (EMLC) can provide higher yield -- and indeed, local currency ETFs have outperformed hard-currency funds this year. That said, investors should expect more currency fluctuations, especially in light of the dollar's recent rally.

🇮🇪 Ireland makes its case to be Europe's AI hub

For years, Ireland's economy benefitted from foreign direct investment, with multinational firms like Apple and Eli Lilly paying billions in taxes. But as the U.S. pivots to more domestic manufacturing, Ireland's strength has become a vulnerability.

Dublin's low corporate tax rate has long made it an attractive European home for American companies, particularly in the pharmaceutical and technology sectors. Foreign multinationals accounted for about 87% of Ireland's corporate tax revenue in 2025, according to government data. With U.S. trade policy in flux, Ireland needs to make the case it remains a competitive option for the foreign companies that called it home.

I sat down with Michael Lohan, CEO of IDA Ireland, the country's foreign direct investment (FDI) agency, to chat more about what makes Ireland an attractive place for foreign investment. He says the organization is betting on harnessing decades of tech experience to nab a slice of the trillion-dollar AI spending pie, and stake its claim as Europe's "premier AI innovation hub."

Here are highlights from our conversation:

How are you trying to position Ireland as an AI player?

As a state, we invested in a training and research centre. That's been really strong for us and really central in terms of developing that human capital and that skill base for the transition.

At an enterprise level, we've seen the companies such as IBM, Microsoft, and Google building very significant engineering teams in Ireland. You're looking again at several hundred technical engineers in Ireland building and driving their digital revolution. We're seeing a significant amount of activity happening, especially in our R&D supports and initiatives that we have with our client companies. Today, almost 90% plus of the R&D projects that we support for our client companies have a significant component of AI built in those.

Is it mostly on the software side, or are you developing hardware capabilities too?

We do have the hardware. Ireland has been an early adopter of data centers. We've had data centers for 20-plus years. There's a lot of debate in terms of data centers, data center demand, how that matches the [energy] grid and so forth. In Ireland, we've been having that conversation for probably the last two to three years at a policy level. And in the last year, we have linked our policy ambition with a sustainable, renewable energy perspective. So data centers need to develop in such a way that they're actually enabling sustainable supply.

What is the ideal ripple effect from FDI into the broader Irish economy and Irish markets?

We have seen the transformation of our economy and FDI has been a major component of that. But it hasn't been standalone. In Ireland, we have a very strong indigenous base of companies. We have been proactive in ensuring that those companies get the opportunity to partner with foreign direct investment, and become part of their supply chain. For instance, the onset of data centers in Ireland has developed an expertise in Irish manufacturing or in Irish suppliers that is now world renowned. The other sector in which we've seen a lot of really strong alignment is in the healthcare and the medical device industry, which is enabled and supported [by] spillover from the foreign direct investment medical device industry.

It's hard to compete with your neighbors, especially if you're a smaller economy. How do you make Ireland's size an advantage?

Because we're a small economy, we're very agile. We have absolute alignment at the political level in terms of the focus on pro-enterprise policy. It's across the board. It is not a negotiable in terms of the political landscape. I think that's really important because that means there's a certainty and security for investors when you come to Ireland. You know that the path isn't going to change. You know that the pro-enterprise policies are going to remain. You know that if there's an adjustment to be needed, that the Irish government will be at the forefront of that. And we've shown that over the years.

#?? Number of the week: EUR103 billion

Or $115.3 billion. That was the European Union's trade in goods deficit with China in the second quarter of this year, the highest since Q3 2022. Narrowing the deficit will be a key priority for EU trade officials as they prepare to meet their Chinese counterparts in Beijing from Thursday to Friday.

🇲🇽 Is the run of the super peso over?

After months of charging at full speed, it seems like the "super peso" is running out of gas.

Mexico's currency has depreciated starkly against the dollar over the past month, losing nearly 6% since Sept. 7.