Weekly Newsletter

Executive Summary: The trading week ending January 16, 2026 presented global credit markets with a striking paradox: a forceful “squeeze” in risk assets characterized by high-yield spread compression and duration-buying in Investment Grade (IG) names, occurring simultaneously with intensifying Middle East geopolitical tensions centered on Iran and potential U.S. intervention. This technical demand reflects cash-rich investors forcing capital into markets to capture yields before potential Fed rate cuts later in 2026. The catalyst was a softer-than-expected U.S. Core CPI print that reignited the “soft landing” thesis and forced under-invested cash off the sidelines. High-yield names generally tightened +13ct to +50ct, reversing weakness from prior sessions, while IG duration saw sustained buying interest.

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Macro & Geopolitical Backdrop

The U.S. Core CPI release came in lower than consensus expectations, dismantling fears that persistent inflation would force indefinite Federal Reserve restrictiveness. The “squeezy” tone reflects a shortage of paper in dealer inventories—market makers had run light positions anticipating Middle East volatility, but when macro data greenlit a rally, the lack of offers exacerbated the move as buyers chased the market.

The Iran Binary Trade: Geopolitical risk in the Middle East is behaving in binary fashion. The market oscillates between fear of regional war (typically widening spreads) and cynical trading that U.S. strikes might reshape regional power dynamics to benefit specific distressed credits. This “binary” trade is visible in divergence between Lebanon (the long leg) and Egypt (the short leg).

Regional Credit Developments

🌎 EM Ex-Asia Credit: Latin America

• Colombia Sovereign: Successfully priced massive $4.95 billion external bond deal—largest in history. 5Y and 7Y tranches trading +70ct above reoffer vs 3Y at +35ct. Orders reached $23.2B at peak. Political catalyst: Abelardo de la Espriella leading polls with 28% support, defeating Petro’s candidate by 9pp in projected runoff. Curve tightened -1bp/-4bp on market-friendly regime change expectations ahead of May 2026 elections.
• CSN (Brazil): Announced aggressive divestment plan targeting BRL 15-18 billion ($2.8-$3.3B) to reduce net debt/EBITDA from 3.14x to 1.0x target. Full sale of cement unit and significant infrastructure stake sales. Mining division retained. Bonds rallied +1.5-3pts as credit investors view this as necessary deleveraging to avoid downgrades.
• Venezuela (PDVSA): Complex experienced high volatility following Trump administration executive order shielding oil revenues from U.S. creditors. Initial -2pt reaction, ultimately closing -1.5pt/-2pt lower, highlighting extreme legal/political fragility of recovery value.
• Braskem Idesa (Mexico): BAKIDE bonds rallied +2pts to 63.25/65.25 following company “cleansing statement” interpreted as step toward resolving liquidity bottlenecks with PEMEX feedstock supply contracts.

🌍 EM Ex-Asia Credit: Sub-Saharan Africa

• Mozambique: MOZAM bonds underperformed, dropping -2.5pts before recovering to -1.25pts. President Daniel Chapo (inaugurated Jan 15) stated debt renegotiation talks will only start AFTER reaching IMF program agreement. Market fears this IMF-first approach will lead to deeper haircuts via Debt Sustainability Analysis “comparability of treatment.” MOZAM 2031s (legacy Tuna Bonds) holders disappointed by procedural delay.
• Egypt: European Commission disbursed €1 billion MFA on Jan 15—first of three installments under €4B operation. Provides relief for balance-of-payments pressures from Ukraine war, Middle East conflicts, Red Sea disruptions. However, curve had earlier widened -38ct/-1.13pt on Iran escalation headlines with steepening indicating long-term solvency fears should Suez revenues be impaired.

🇨🇳 Asia Credit: Hong Kong Property

• New World Development (NWDEVL): Week’s star performer. Senior bullets rallied +1-1.5pts; perpetual bonds surged +3-6pts on market speculation (denied by company) that Marriott might acquire Rosewood Hotel brand. NWDEVL equity +10%. Market thesis: if company monetizes hospitality assets, liquidity runway extends significantly, removing immediate default risk. Step-up perps outperformed on increased redemption/tender probability.
• Sympathy Rally: Lai Sun (LAISUN) and Far East Consortium (FAECÃO) both +1-2pts on similar asset-rich, liquidity-poor profiles. Hong Kong property equities strong YTD with SHKP, NWD, Henderson Land up 12-13%, supporting credit sentiment.
• SHK & Co: New 6.75% issuance underperformed, breaking -1pt before recovering to -0.25pt on private-bank buying, highlighting market preference for hard-asset stories over financials.

🇮🇳 Asia Credit: India NBFC Structural Upgrade

• Shriram Finance (SHTFIN): S&P upgraded to Investment Grade (BBB-/Stable from BB+) on Jan 15; short-term rating to A-3 from B. Catalyst: US$4.4B capital infusion from MUFG Bank for 20% stake. Risk-adjusted capital ratio expected to exceed 20% in FY26-27/FY28 vs prior 13.75-14.75% expectation. Bonds rallied +0.25-0.5pt. Major implications: allows IG-only mandates to buy, creating permanent new demand; compresses spreads across other high-quality NBFCs; projected cost of funds to fall 10-30bps over next two years.
• Adani Ports (ADSEZ): Moody’s revised outlook to stable from negative, cementing Adani complex rehabilitation post-Hindenburg.
• Vedanta (VEDLN): Bonds continued grinding higher +0.25pt amid ongoing deleveraging efforts in 13.875% 2028s and 9.25% 2026s.
• Indika Energy (INDYIJ): Indonesian energy bonds rallied +0.5pt on sector compression buying.

🌏 Asia Credit: Technicals & New Issuance

• IG Tone: Mixed but resilient. Spreads 1-4bp tighter across Meituan curve and A-rated credits. Steady reception for high-quality new issues (SK Battery, Posco). Indonesia 3-part sovereign slipped 0.5-1pt below reoffer.
• HY Compression: Recurring theme with buying in West China Cement (WESCHI), NBFCs, frontier sovereigns. Japan names weaker -0.25-1pt on profit-taking.

Key Themes & Trading Flows

Geopolitics vs. Technicals: Across EM ex-Asia and Asia, geopolitical risk generated intraday volatility, but strong Real Money demand, improving fund flows, and constructive macro kept risk tone underpinned, especially in higher-beta sovereigns and HY corporates.

Relative Value Activity: RV trades picked up with swaps and CDS printing across EGYPT, TURKEY, BAHRAIN, COLOMBIA, GCC curves. Long: Bahrain/Turkey. Short: Egypt (proximate risk to Israel/Gaza/Suez).

Frontier & SSA: Buying in Dominican Republic and Costa Rica (curves steepened +5bp/+10bp but remain crossover favorites). Selling Senegal (underperformed -50ct/-1pt). Pakistan flat, awaiting next IMF review.

Week Ahead Watch Items

• Iran Developments: Any direct retaliation will impact market sentiment. Brent crude movement above $85/bbl could signal rotation patterns.
• Mozambique: Market watching for any evolution in President Chapo’s stance on IMF-first debt renegotiation approach.
• TMT M&A: Further developments on Tigo/Movistar Chile discussions being monitored.
• Colombia Elections: Poll monitoring continues ahead of May 2026 elections.
• Hong Kong Property: Asset sale announcements from NWD complex or other developers remain in focus.

REFERENCES & SOURCES

DISCLAIMER

This document is strictly confidential and is being provided to you for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities or financial instruments. The information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.

AI Generation Notice: This newsletter has been generated using Artificial Intelligence technologies including Gemini AI and Perplexity AI for research synthesis. All factual claims have been verified against primary sources listed above. Users should independently verify critical data points. Past performance is not indicative of future results.

Executive Summary: The first full trading week of 2026 was defined by extreme geopolitical shifts and a surge in primary market issuance. In EM ex-Asia, the detention of Nicolas Maduro by US authorities triggered a massive rally in Venezuelan paper, while high-beta credits showed significant intraday volatility. In Asia, credit markets maintained a strong initial tone, though profit-taking emerged mid-week in high-yield names, particularly in the China property and Indian NBFC sectors.

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Regional Credit Developments

🌍 EM Ex-Asia Credit

• VENZ/PDVSA: Rallied +9pt/+10pt following the detention of Nicolas Maduro; closed near weekly highs despite late profit-taking.
• UKRAIN: Rebounded +50ct/+1.5pt on improved sentiment regarding peace negotiation milestones and security guarantees.
• SENEGL: Outperformed (+1.88pt/+4.25pt) following positive IMF progress and strong local auction results.
• MEXICO: Successfully absorbed $9BN in new supply across tranches, with the 30Y trading +70ct above reoffer.
• LEBAN: Gained +4.75pt (trading context 28-28.75) fueled by heavy Real Money demand.

🇨🇳 Asia Credit: China Property & HY

• Vanke (VNKRLE): USD bonds plunged 3-4pts on heightening restructuring fears and low recovery estimates.
• New World Development (NWDEVL): Front-end bonds spiked +1-2pts on reports of using internal cash flow for upcoming maturities.
• Nickel Industries: Rallied +1.5pts following a sharp spike in global nickel prices.

🌏 Asia Credit: Frontier & Sovereign

• Sri Lanka (SRILAN): Ripped +2pts higher on strong RM/HF demand and scarcity of long-dated paper.
• Indian NBFCs: MGFLIN and IHFLIN weakened (-0.75pt) following RBI objections to the Bain Capital deal structure.
• Eximbank: New 30Y $ issuance tightened 8bps on the break due to scarcity value for Indian long-end bonds.

DISCLAIMER

This document is strictly confidential and is being provided to you for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities or financial instruments. The information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.

AI Generation Notice: Portions of this content may have been generated or assisted by Artificial Intelligence (AI) technologies. Users should independently verify critical data points. Past performance is not indicative of future results.

Executive Summary: Global markets were anchored by the FOMC’s decision to cut rates by 25bps. While the rate cut supported Treasuries, US equities were mixed due to AI-sector volatility (Broadcom, Oracle). Regional divergence was a key theme: EM ex-Asia credit remained resilient with tightening spreads, while Asia markets saw mixed equity performance but stable credit.

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Regional Credit Developments

🌍 EM Ex-Asia Credit

• Ukraine (UKRAIN): Strong rally (+1.0-2.0pts) on headlines of US-Ukraine security guarantee discussions. GDP Warrants also rallied (+1.5pts) on amended terms and deadline extension.
• Argentina (ARGENT): Firm amid volatility. The government successfully issued $1.4bn notional in local bonds (ARGBON) at 6.5%. Nov inflation: +2.5% MoM.
• Brazil (BRAZIL): 2026 election polling shows Lula leading (38%), with Michelle Bolsonaro (23%) outperforming other opposition figures like Tarcísio de Freitas.
• Venezuela (VENZ/PDVSA): Rallied (+0.75/+1.25pts) on expectations of US operations following the seizure of a sanctioned tanker and rhetoric from President Trump.
• Gran Tierra Energy (GTE): Bonds dropped sharply (-2.75pts) after Moody’s placed the credit on review for downgrade due to weaker production growth.
• Ecobank Nigeria: Successfully accepted $71m for its tender offer on 2026 notes.

🇨🇳 Asia Credit: China Property & HY

• Vanke (VNKRLE): Standout performer; USD bonds +2pts, Equity +13% on new proposals to onshore bondholders including potential SOE credit enhancement.
• New World Dev (NWDEVL): Sentiment improved after family sold 100% stake in Alinta Energy to Sembcorp (EV A$6.5bn), sparking hopes of cash injection.
• Dalwan: Proposed extending Feb 2026 notes to 2028; market reacted positively (+1-2pts) due to consent fee and mandatory partial redemptions.
• Lai Sun: 2026 bonds up +5-6pts after selling 50% stake in CCB Tower to JD.com for HK$3.5bn.

🌏 Asia Credit: Frontier & Sovereign

• Sri Lanka (SRILAN): Stabilized (+0.125/+0.25pts) after initial weakness; IMF review delayed as government focuses on emergency flood relief.
• Pakistan (PKSTAN): Stable/Firm after obtaining IMF loan installments.
• Thailand: Corporate spreads remained in demand despite geopolitical tensions (air strikes on Cambodian military sites).
• Genting: Downgraded by Moody’s to Baa3 (Stable); bonds remained resilient (+0.25pt).
• Vedanta (VEDLN): Curve traded up +0.5pts, supported by rally in Hindustan Zinc equities (+4.2%) and silver prices.

DISCLAIMER

This document is strictly confidential and is being provided to you for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities or financial instruments. The information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.

AI Generation Notice: Portions of this content may have been generated or assisted by Artificial Intelligence (AI) technologies. Users should independently verify critical data points. Past performance is not indicative of future results.

Executive Summary: Market pricing currently implies a >90% probability of a 25bp Fed cut at the upcoming meeting. In Asia, India reported +8.2% GDP growth, while China’s property sector data continues to show contraction. In EM ex-Asia, volatility increased following headlines regarding Ukraine peace negotiations.

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Market Dashboard

Regional Credit Developments

🇮🇳 India

• Macro Data: India GDP growth recorded at +8.2%. The RBI cut benchmark rates by 25bps.
• Reliance Industries (RILIN): S&P upgraded the rating to A- (previously BBB+). Spreads tightened 7-14bps following the announcement.
• Adani Ports (ADSEZ): November cargo volumes increased +14% YoY. ADSEZ 31s bond spreads are quoting at ~G+191bps.
• Ratings: Fitch downgraded Greenko (GRNKEN) to BB- citing project delays. S&P and Moody’s revised Vedanta’s outlook to Positive.

🇨🇳 China & North Asia

• Meituan: Q3 revenue increased +2% YoY. Net cash position declined by RMB 30bn QoQ following expansion initiatives in the Middle East and Brazil.
• Property Sector: Fitch released a 2026 outlook citing continued office oversupply. China Vanke was downgraded to ‘CCC-‘ with ratings placed on Watch Negative.
• South Korea: Moody’s downgraded Hanwha TotalEnergies to Ba1 (High Yield), citing petrochemical cycle weakness.

🇦🇺 Australia & ASEAN

• Regulatory (Australia): APRA finalized the AT1 capital phase-out. Banks will replace 1.5% AT1 buffers with 1.25% Tier 2 capital and 0.25% CET1.
• Indonesia: The new Sovereign Fund (Danantara) has been cited in media discussing potential overseas investments.
• Frontier Markets: Severe flooding reported in Pakistan and Sri Lanka; Pakistan finance minister projects a 0.5% impact on GDP growth.

🌍 EM Ex-Asia (CEEMEA & LatAm)

• Ukraine (UKRAIN): The sovereign launched a consent solicitation to exchange GDP Warrants into new 2030 and 2034 notes. Warrants rallied +5.5pts following the launch.
• Argentina (ARGENT): Minister Caputo announced plans to issue a new local law USD bond (6.5% coupon, maturing Nov 2029). President Milei’s approval rating polled at 42.6% in November.
• Senegal (SENEGL): Bonds rebounded +0.25pts on Friday after an IMF spokesperson confirmed ongoing work on a Debt Sustainability Analysis (DSA).
• Chile (Corp): Telefonica Chile bonds dropped ~2pts following reports of binding offers valuing the company at $1.2-1.3bn.

DISCLAIMER

This document is strictly confidential and is being provided to you for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities or financial instruments. The information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.

AI Generation Notice: Portions of this content may have been generated or assisted by Artificial Intelligence (AI) technologies. Users should independently verify critical data points. Past performance is not indicative of future results.