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.

Market Visualizer

*Weekly Snapshot: Key Drivers & Regional Flows*

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.