Weekly Updates

• EM credit spreads widened modestly as renewed Middle East tensions and higher oil prices triggered a risk-off tone, with EM high yield underperforming investment grade.
• EM bond fund inflows accelerated to US$898mn, supported by strong demand across both hard-currency and local-currency debt despite geopolitical volatility.
• Carry remains the dominant investment theme as repeated bouts of spread widening continue to attract dip buyers and preserve most second-quarter gains.
• Oil-exporting sovereigns and credits generally outperformed on higher crude prices, while importers and politically sensitive markets faced pressure.
• A heavy sovereign issuance pipeline and elevated geopolitical risks remain the primary near-term challenges for EM credit markets.

Market Visualizer

Weekly Snapshot: Key Drivers & Regional Flows

Regional Credit Developments

Global EM Themes

• EM bond fund inflows strengthened to US$898mn from US$715mn the prior week, with hard-currency funds attracting US$459mn and local-currency funds receiving US$438mn.
• ETF allocations accelerated to US$575mn, indicating investors continued adding EM exposure despite rising geopolitical risks.
• Asia ex-Japan bond funds returned to positive territory with US$62mn of inflows after posting outflows the previous week.
• Frontier local markets and traditional high-yield sovereigns remained among the best-performing EM segments as investors continued to favour carry opportunities.

• Escalation in US-Iran tensions, including threats to Gulf and Red Sea energy routes, pushed oil prices toward the high-US$80s/bbl range and drove a broader risk-off tone.
• Higher oil prices generally supported commodity-exporting sovereigns while increasing macro pressures on oil-importing economies.
• EM Aggregate spreads widened 4.65bp during the week, although market weakness remained orderly rather than disorderly.

Regional Developments

• MENA credits broadly underperformed as widening CDS levels and weaker cash-bond performance weighed on markets including Egypt, Bahrain, Türkiye and Pakistan.
• Egypt was among the weakest performers, with sovereign bonds falling roughly 0.75-2.13 pts and 5-year CDS widening 21bp amid geopolitical concerns and risk-off flows.
• Kenyan sovereign bonds declined around 1.25-1.75 pts despite discussions regarding a potential US$500mn Eurobond buyback.
• Senegal recovered after reports that a debt adviser had been appointed, though investor focus remained on debt sustainability and restructuring outcomes.
• Higher oil prices supported credits linked to Gabon, Angola, Mozambique and other oil-exporting economies, helping them outperform regional peers.
• Investor attention also focused on strategic developments in Angola, governance discussions in South Africa and ongoing debt-related developments across several frontier markets.

• Romania faced pressure from renewed political uncertainty and election-related headlines before recovering later in the week.
• Serbia weakened following a €500mn private placement of a new 2032 Eurobond, although buying interest later emerged at wider spread levels.
• Ukraine remained highly volatile as initial selling was followed by a short squeeze before risk managers and hedge funds re-sold the rally.
• Market participants closely monitored political reshuffling and ongoing restructuring developments involving key state-linked entities.
• CEE remained one of the most active issuance regions, with upcoming local-currency auctions scheduled across several sovereign markets.

• Latin American sovereigns generally proved more resilient than CEEMEA markets despite heightened global volatility.
• Brazil outperformed and finished unchanged to slightly tighter even after headlines related to new tariff measures on selected exports.
• Colombia benefited from fiscal-reset discussions and IMF-related technical assistance developments.
• Argentine warrants recorded trading volumes exceeding US$200mn, while sovereign bonds ended modestly lower amid local supply and mixed investor positioning.
• Corporate credit conditions softened as downgrades continued to outpace upgrades and profit-taking pressure emerged within tightly valued investment-grade issuers.

• Carry continued to support Asian credit markets, helping offset the impact of geopolitical headlines and broader risk-off sentiment.
• Asia remained the largest contributor to EM corporate issuance, accounting for approximately US$133bn of the US$312bn issued year to date.
• High-yield credits continued to outperform, with ongoing investment-grade versus high-yield spread compression observed across EM markets.
• Local-currency bond issuance remained active across major markets including China, India, Indonesia, South Korea, the Philippines, Malaysia and Thailand.

Primary Markets

• The sovereign issuance calendar remains heavy, with market participants monitoring transactions across the Middle East, Africa, Latin America, Eastern Europe and Asia.
• Several frontier and high-yield sovereign borrowers are expected to remain active, creating an important test of investor appetite amid elevated geopolitical uncertainty.
• EM corporate issuance remained resilient despite seasonal factors, with full-year issuance expectations approaching US$460bn.
• Primary market activity continues to be supported by healthy global liquidity conditions and persistent demand for carry-oriented assets.

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.

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