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

Last week was all about the easing of geopolitical tensions, as reports that both the US and Iran would agree to a 60-day ceasefire sent oil prices down more than 10%. This resulted in the S&P 500 and the Euro Stoxx 50 gaining +1.4% and +0.5%, respectively, while Emerging Markets (EM) equities also gained +3.9%. The US rates curve saw a bull steepening, with 5-year yields down 12 basis points (bps) and 30-year yields down 9bps. 10-year US real rates were 11bps lower to end the week at 2.03%.

In EM credit markets, spreads were 3bps wider for corporates and 3bps tighter for sovereigns, while total returns were up +0.5% and +1.2%, respectively. In the corporate space, the transport and real estate sectors outperformed, while the infrastructure and banks sectors underperformed. In the sovereign space, the notable performers were Mozambique and Zambia. The biggest underperformers were Senegal, Venezuela, and Papua New Guinea.

In EM local markets, returns were up +1.0%, with foreign exchange (FX) contributing +0.3% and rates +0.7%. In the FX space, outperformers were the Hungarian forint and South African rand, while underperformers were the Indonesian rupiah, Brazilian real, and Uruguayan peso. In the rates space, Turkey and Colombia outperformed, while Serbia, Uruguay, and Indonesia underperformed.

Market highlights

• Hungary secured the release of EUR16.4 billion in previously frozen EU funds, following an agreement with European Commission President Ursula von der Leyen and incoming Prime Minister Péter Magyar. The substantial disbursement, equivalent to 7.5% of Hungary's 2025 GDP, comes as the country commits to structural reforms addressing governance and anti-corruption standards, notably through participation in the European Public Prosecutor's Office and enhanced powers for its Integrity Authority. The funding package, drawn from recovery, cohesion, and research allocations, signals a potential thaw in tensions between Budapest and Brussels over rule-of-law compliance, suggesting renewed alignment on EU governance standards under new Hungarian leadership.

• Colombia's presidential runoff is set after Abelardo de la Espriella narrowly defeated Iván Cepeda in the first round, with 41.7% versus 40.9%, but failed to gain a >50% majority. The campaign divide hinges on security and economic management, with Abelardo de la Espriella holding momentum among centrist voters and likely benefitting from Paloma Valencia's endorsement and the reallocation of Sergio Fajardo's one million votes. Though neither candidate commands a congressional majority, Abelardo de la Espriella has demonstrated cross-party appeal at provincial levels, suggesting potential coalition-building capacity—a critical consideration for investors assessing governance stability and policy coherence in the 21 June runoff.

Market outlook

Market pressures have intensified amid escalating US-Iran rhetoric, driving further oil price volatility. However, markets increasingly appear to be dismissing this as noise, focussing instead on the likely outcome of a negotiated settlement. This resilience reflects a broader market dynamic: while global central banks have shifted decisively hawkish—with the European Central Bank (ECB) flagging June rate hike risks that markets have nearly fully priced in—equity markets remain robust. The S&P 500 has reached fresh all-time highs, buoyed by AI-related capital expenditure and robust earnings momentum, while US economic data continues to surprise on the upside, with ISM Manufacturing hitting a four-year high and reinforcing underlying economic strength.

Emerging market fixed income has gained considerable momentum from positive outcomes in Colombia's first-round elections, providing particular tailwinds to Latin American assets. In EM credit, attractive all-in yields continue to anchor investor interest, and a potential near-term geopolitical relief rally is drawing fresh inflows, with hard currency bonds capturing the majority of flows last week. We maintain our preference for Latin America and those EM economies benefitting from current terms of trade dynamics. Looking forward, we expect the asset class to sustain a positive bias as investors continue rebalancing portfolios towards higher EM allocations.