According to Morgan Stanley's latest report, emerging market (EM) local currency bonds are poised for a strong performance in 2025, driven by a significant depreciation of the US dollar. The report highlights that "material USD weakness sees EMFX trade very strongly," which is expected to benefit long-end EM local currency bonds with high real yields, particularly in Brazil, Mexico, Indonesia, and South Africa. This anticipated outperformance is attributed to the potential for substantial EMFX strength, as the US dollar is projected to weaken more dramatically than previously forecasted. Morgan Stanley's analysts suggest that this scenario could lead to increased inflows into EM assets, lower inflation, and a more dovish monetary policy stance from EM central banks, further supporting the performance of EM local bonds.