Emerging country governments increasingly issue bonds denominated in local currency. Despite this recent development, the markets for foreign and local currency government bonds exhibit a substantial degree of segmentation. First, we show that a standard asset pricing model with representative foreign investor cannot price both local and foreign currency government bonds. Second, we show that the share of local currency debt held by foreign investor is a significant determinant of the degree of market segmentation. Third, we propose a simple model of partially segmented markets that replicates the observed empirical regularities.