As the global credit selloff deepens, emerging-market investors are cutting their riskiest bond positions, according to reports.

From Aegon USA Investment Management to JPMorgan Asset Management, multiple asset managers worry that surging global interest rates could end the strong performance of emerging-market debt.

Although recent market turmoil has pushed U.S. Treasury yields to near 20-year highs, emerging-market sovereign dollar bonds have still returned 1.4% over the past year. Yet even with oil above $100 a barrel and investors bracing for "higher for longer" global rates, credit spreads have narrowed to the tightest level since 2007. That makes fund managers uneasy, as they believe these bonds are bound to face a selloff.

"When government rates rise, I get a little worried about what that means for spread levels," said Jeff Grills, head of emerging-market debt at Aegon. "It's hard to find major opportunities when I look for them." He recently trimmed exposure to Colombia while adding debt from higher-rated borrowers such as Indonesia, Saudi Arabia and the Philippines.

He is not alone. Gorky Urquieta of Neuberger Berman reduced positions in high-yield debt from Ecuador, the Dominican Republic and Zambia and has struggled to find ways to add risk to portfolios. "We've been in a bit of a retrenchment mode," Urquieta said.

The pullback comes after emerging markets weathered a sharp repricing of global rates and conflict in the Middle East. Sticky inflation and a resilient U.S. economy have driven Treasury yields higher as traders bet on a more aggressive Federal Reserve tightening path. But emerging-market dollar bonds have so far held on to their gains.

According to JPMorgan data, the spread of developing-nation dollar bonds over Treasuries is only 170 basis points, the narrowest since 2007. That relative strength is one reason investors are uneasy. Valuations remain elevated, and the sharp rise in Treasury yields means emerging-market credit has less room to absorb another global rate shock without a significant widening of spreads.

Industry research views Fed policy as the main risk for hard-currency emerging-market debt in the fourth quarter, saying spreads near 19-year lows could amplify shocks for country-specific bonds.

Caution is also starting to show in fund flows. The world's largest ETF tracking emerging-market hard-currency bonds suffered one of its biggest single-day outflows since March last week. Some investors are choosing to raise credit quality rather than abandon emerging-market debt entirely.

Matt Graves of PPM America is adding duration through higher-rated borrowers such as Morocco while cutting riskier positions such as Angola that performed strongly earlier this year. Others see the Treasury selloff creating opportunities in beaten-down investment-grade bonds.

Fernando Grisales, a senior portfolio manager at Schroders in New York, added dollar debt from Saudi Aramco and Mexico. "Value is emerging at the long end of the investment-grade credit curve, and these credits are very solid," he said.

JPMorgan Asset Management is taking a different route. Its head of emerging-market debt, Pierre-Yves Bareau, is reducing the portfolio's sensitivity to a credit selloff and shifting some risk into local-currency bonds, including Mexico, because he believes swap markets are pricing in too many rate hikes.

Local-currency debt is still up an average of 0.9% this year, while a gauge of developing-nation equities has risen more than 23%, outperforming developed-market stocks. Higher local rates and elevated commodity prices also make markets such as Brazil and Colombia attractive to investors.

"We are taking slightly less risk," Bareau said. "We are playing the other side more through local markets rather than credit."