Senior Portfolio Manager Anthony Kettle’s weekly BlueBay Emerging Market Debt commentary offers readers a concise yet wide-ranging macro overview. Kettle covers markets large and small, providing insight on how financial, political, and economic developments in one region affect markets elsewhere. Here is his latest insight.

Summary

This past week saw strong US corporate earnings and expectations of ongoing AI capex combining with optimism around the Iran conflict to drive risk markets higher. This resulted in the S&P 500 gaining +2.3% and the Euro Stoxx 50 gaining +0.5%, while emerging markets (EM) equities outperformed and delivered +6.9%, with Korea powering returns. The US rates curve was little changed with 5-year yields down 1 basis point (bp) and 30-year yields down 2bps. 10-year US real rates were 2bps higher to end the week at 1.89%.

In EM credit markets, spreads were 2bps tighter for corporates and 6bps tighter for sovereigns, while total returns were up +0.3% and +0.5%, respectively. In the corporate space, the transport and real estate sectors outperformed, while the diversified and industrials sectors underperformed. In the sovereign space, the notable performers were Mozambique and Venezuela. The biggest underperformers were Senegal, Angola, and Jamaica.

In EM local markets, returns were up +1.0% with foreign exchange (FX) contributing +0.5%, and rates +0.5%. In the FX space, the outperformers were the Hungarian forint, Peruvian sol, and Uruguayan peso, and the underperformers were the Colombian peso, Turkish lira, and Indonesian rupiah. In the rates space, Romania, Hungary, and Turkey outperformed while Colombia, China, and Dominican Republic underperformed.

Market highlights

• Colombia's 31 May presidential election is fast approaching and will likely require a run-off, with left-wing frontrunner Ivan Cepeda polling around 40%, but facing notable competition from centre-right candidate Paloma Valencia (~30%). The second-round outcome remains uncertain, creating policy risk for Colombian sovereign and corporate credit through mid-2026, as investors await clarity on the next administration's fiscal and economic direction. We expect the most volatile asset to be Colombian local rates, with large moves possible in either direction depending on the result and the ensuing messaging around fiscal policy.

• In Romania, the Bolojan government was removed this week with 281 votes. However, MPs appear to lack consensus to govern together, leaving the largest party (Social Democratic Party (PSD)) to form a majority either with former allies or far-right parties. The President favours a pro-EU majority, though this is challenging after the PSD's recent break. It seems that there will be a wait of at least a few weeks before the formation of a new government, with political volatility likely. The market's base case remains medium-term fiscal consolidation under a pro-EU majority, though far-right coalition risks persist.

Market outlook

Market concerns are rising after the relative calm of last week as geopolitical tensions have intensified, with the US-Iran ceasefire now appearing increasingly fragile amid hawkish posturing from both sides. President Trump's characterisation of the ceasefire as being on "life support" and Iran's hardline stance on nuclear enrichment and sanctions relief suggest negotiations remain deadlocked, with both sides still seeking leverage ahead of the Trump-Xi summit later this week. The stalemate has pushed oil prices higher once more, raising the prospect of a more prolonged energy shock. The energy impulse continues to impact Treasury yields with a pronounced bear flattening, whilst central banks globally have shifted hawkish, with both the European Central Bank (ECB) flagging June hike risks and the Bank of Japan (BoJ) signalling tightening ahead. Equity markets have nonetheless remained resilient, grinding to fresh all-time highs as first quarter (Q1) earnings momentum—particularly from AI-linked capex and tech mega-caps—has provided a meaningful counterweight to geopolitical and energy headwinds.

Beyond geopolitical developments, policy uncertainty has emerged as a second source of market volatility. Korea's proposed "citizen dividend" on AI profits has sent the Korea Composite Stock Price Index (KOSPI) volatility soaring and weighed on global tech sentiment, whilst UK political instability around Prime Minister Keir Starmer's leadership continues to drive significant gilt repricing, with 30-year yields close to 5.75%. Trump's consideration of a gasoline tax holiday and broader fiscal support for energy prices suggests governments will increasingly look to offset the growth drag from higher oil through fiscal measures, though this risks putting sustained upward pressure on long-end yields, particularly in markets with limited fiscal space like the UK.

For EM fixed income, the energy shock is driving sharp regional differentiation. Asia's more resilient economies—Japan, China, Korea, Taiwan—benefit from large crude reserves and tech momentum, while others, including the Philippines, Vietnam, Indonesia and India, face greater Middle Eastern reliance. Central bank patience is waning as inflation surprises broaden beyond energy, with the Philippines and Türkiye already hiking and risks rising elsewhere, though we still expect that most EM central banks will remain more patient than markets price. In Latin America, commodity exporters remain better positioned given elevated oil and resilient earnings, though higher energy costs are limiting further easing in Mexico and Brazil. Overall, we see EM credit spreads as remaining historically tight but also see all-in yields as offering reasonably attractive valuations, with primary issuance providing further opportunities. We maintain our preference for Latin America and those EM economies structurally benefitting from elevated oil prices. Looking ahead, we expect the market's focus to now turn to the upcoming summit between Presidents Trump and Xi over the coming week.