Weekly Newsletter

• The Federal Reserve delivered its first rate increase since 2023, with median projections pointing to one further hike by year-end, unchanged policy through 2027 and 25bp cuts in both 2028 and 2029, raising the duration hurdle for EM credit.
• EM bond funds returned to outflows of -US$320mn, driven by US$542mn of hard-currency redemptions and US$304mn from ETFs, while local-currency funds still took in US$221mn.
• EM credit weakened modestly over 14-18 September with high yield underperforming, as aggregate spreads widened 5.5bp WoW and high-yield spreads widened 10.5bp.
• Senegal formally requested debt treatment under the G20 Common Framework and continued IMF discussions, shifting bondholder focus to the treatment perimeter and burden sharing.
• Weekly EM credit issuance fell to US$5.9bn from US$19.3bn with no sovereign supply, though the forward pipeline remains considerable.

Market Visualizer

Regional Credit Developments

Global EM Themes

• EM bond funds swung to -US$320mn of weekly outflows, with hard-currency funds losing US$542mn after US$228mn of inflows the prior week; broad EM funds shed US$375mn and Asia ex-Japan funds US$166mn.
• Local-currency funds attracted US$221mn including US$204mn into EM ex-China, though non-resident local-bond flows were negative and led by -US$735mn from Indonesia, the largest country outflow in the week.
• ETF outflows accelerated to US$304mn from US$16mn and EM equity funds lost US$2.0bn, weakening the technical cushion for tight-spread and less-liquid credits.
• EM aggregate spreads widened 5.5bp WoW and high-yield spreads widened 10.5bp, with Türkiye and Argentina among the weakest sovereigns and Gabon and Mozambique the strongest.

• The Federal Reserve raised rates 25bp, its first increase since 2023, and paired it with hawkish guidance; 10y UST touched 5% into the meeting before rallying with a flatter curve the following day.
• Year-end 2026 Treasury yield targets were lifted to 4.70% on 2s and 5.05% on 10s, with a further hike expected in December and a risk of another in early 2027 if growth holds and inflation stays sticky.
• EM disinflation is assessed as largely behind us on higher crude and refined-product prices, rising global food prices and diminishing fiscal buffers, with Asia showing the strongest inflation acceleration among EM Edge regions.
• Ukraine raised its policy rate 50bp to 16% and Armenia hiked 25bp, while South Africa is forecast to move 25bp higher to 7.25% and Hungary, Egypt and Nigeria to stay on hold.
• Brent traded at US$100-110/bbl, with sustained prices above US$100 viewed as unlikely as surplus inventory, additional supply and demand destruction rebalance the market.

Regional Developments

• The temporary shutdown of Saudi Arabia’s East-West pipeline, Iran-Houthi tensions and continued Gulf and Red Sea shipping disruption drove early-week weakness, though GCC credits proved resilient and recovered as escalation fears eased.
• Israel’s August inflation printed at 1.5% year over year, modestly below expectations.
• Senegal formally requested debt treatment under the G20 Common Framework while continuing IMF discussions, with bondholders focused on burden sharing and the eventual restructuring perimeter.
• A Gabonese state debt audit put the consolidated stock at CFA9.52tn (about US$16.7bn) at end-2025 versus an initial estimate of nearly CFA11.7tn, 19% lower, and bonds rallied +1.50/+3.0pts WoW.
• Mozambique was downgraded to Caa3 with a stable outlook on heightened restructuring risk, yet bonds still gained around 2.5pts on expectations of a new IMF arrangement.
• South African headline inflation is expected to rise on higher food and transport prices, supporting a forecast 25bp policy-rate increase to 7.25%.

• Türkiye was the week’s focal point after redemption problems at local asset managers triggered liquidity concerns and a 6% equity-market decline; sovereign bonds and CDS widened before stabilising once regulators and the central bank introduced support measures.
• Romania outperformed midweek after treasury officials indicated no further bond issuance, but reversed on negative political commentary, leaving the dollar and euro curves +3/+8bp wider.
• Ukraine’s central bank raised the policy rate 50bp to 16%, with fuel and regulated-price increases expected to push inflation higher into year-end.
• A Latvian airline filed for Chapter 11 protection in the Southern District of New York a day before a scheduled bondholder meeting, with its bonds down about 1pt WoW.
• A Turkish power producer appointed financial advisers to assess potential financing opportunities and its bonds fell roughly 15pts WoW, the week’s most significant corporate underperformance.

• Brazil’s central bank cut the benchmark rate to 13.75% as expected, though the sovereign curve still widened +4/+6bp WoW, erasing part of its recent outperformance, with presidential polls effectively tied.
• Regional performance was mixed but broadly constructive, with investor focus on Colombia’s economic team engagement, the Dominican Republic’s debt tender and funding plans, and selective demand for high-quality duration.
• A Peruvian state oil company was moved to a positive outlook at Caa1 after a US$475mn government-supported bridge loan expected to improve liquidity and support working-capital normalisation, but its bonds still closed -0.30/-0.20pts WoW.
• Argentine sovereign bonds underperformed alongside broader high-beta risk assets, with no exact weekly move reported.
• In Venezuela, a major oil company was reported to have held talks on re-entering the country, while the government and opposition were said to be near a deal to move about US$4bn of gold reserves from the Bank of England to the Federal Reserve Bank of New York, potentially for use as borrowing collateral.

• Asian investment-grade sovereigns closed 5-15bp tighter and high-yield sovereigns rallied post-FOMC, with Pakistan 0.25-0.375pts lower across the curve and Sri Lanka’s longer-dated bonds 0.5-1pt higher; Vietnam’s finance ministry is reportedly in talks on a sovereign dollar bond of up to US$1bn, its first since 2014.
• Indonesia saw -US$735mn of non-resident local-bond outflows and a change of finance minister that markets largely looked through.
• Asian IG corporates tightened 3-5bp, led by a strong week in China TMT where spreads rallied 4-7bp tighter post-FOMC on short-covering and end-client demand, while Asian HY corporates closed 0.25-0.5pts lower.
• Real-time secondary property transactions across nine mainland cities rose 15% year over year and tier-one volumes 17%, with official primary and secondary registrations up 4% and 2%, though listing prices remained under pressure.
• China’s securities regulator reportedly declined to accept mandatory convertible bond registrations from distressed developers, which could complicate restructurings by limiting debt-to-equity conversion and creditor exit options.
• Hong Kong property was under significant pressure, with one developer’s perpetuals 3-5pts lower and associated instruments down 7.5-9.5pts amid rights-issue delays and higher mortgage-rate concerns; the city’s first Five-Year Plan (2026-30) was neutral for the sector, prioritising the Northern Metropolis and public housing supply without new measures.
• In Asian gaming, Malaysian perpetuals ended unchanged (3-5bp tighter) while a related curve firmed 0.75-1pt (30-45bp tighter); Macau front-end bonds slipped 0.125-0.375pts and higher-beta intermediate tenors fell 0.5-1pt.
• Mongolia, Pakistan, Sri Lanka and Vietnam face greater fuel or food-price pressure, with a possible December rate increase flagged for Mongolia if fuel and fiscal pressures persist.

Primary Markets

• Total EM credit issuance fell to US$5.9bn from US$19.3bn the prior week, with no EM sovereign supply printed.
• Year-to-date sovereign issuance stood at US$213.7bn, US$16.7bn above the comparable 2025 level and equivalent to 73.2% of full-year expectations.
• Prospective sovereign issuers include Argentina, Colombia, Dominican Republic, Egypt, Guatemala and Nigeria in high yield, and Chile, Latvia, Panama and Romania in investment grade.
• The 2026 EM corporate supply forecast was raised 11% to approximately US$512bn, with issuance reaching US$396.8bn through 15 September, comprising US$288.1bn of IG and US$108.8bn of HY.
• The 2026 EM high-yield corporate default forecast was reduced to 3.1% from 4.3%, with two issuers accounting for 75% of year-to-date default volume.

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