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

Risk markets were under pressure last week as investors began to lose patience with the endless back and forth in headlines around the Iran war, and as the large, impending AI-related IPO pipeline in the US came into focus. This resulted in the S&P 500 and emerging markets (EM) equities losing -2.6% and -2.0%, respectively, whilst the Euro Stoxx 50 bucked the trend and gained +0.2%. The US rates curve saw a bear flattening, with 5-year yields up 13 basis points (bps) and 30-year yields up 2bps. 10-year US real rates were 13bps higher to end the week at 2.16%.

In EM credit markets, spreads were 8bps tighter for corporates and 4bps tighter for sovereigns, while total returns were down -0.1% and -0.2%, respectively. In the corporate space, the oil & gas and utilities sectors outperformed, while the telecoms and metals & mining sectors underperformed. In the sovereign space, the notable performers were Colombia, Zambia, and Gabon. The biggest underperformers were Ukraine and Bolivia.

In EM local markets, returns were down -0.7%, with FX contributing -0.6% and rates -0.1%. In the foreign exchange (FX) space, outperformers were the Colombian peso, Dominican peso, and Indian rupee, while underperformers were the Chilean peso, Malaysian ringgit, and South African rand. In the rates space, Colombia, Turkey, and India outperformed, while Brazil, South Africa, and Poland underperformed.

Market highlights

• Peru's presidential runoff was held last weekend and is trending toward Keiko Fujimori, despite Roberto Sánchez currently holding a razor-thin lead with most votes counted. Fujimori is dominating the overseas ballot—winning by roughly two-to-one margins—and with only a quarter of international votes processed, she is positioned to overtake Sánchez's narrow 0.1% advantage. Given the thin margin, it is likely that the result will be challenged and the process could take one to two weeks to resolve, meaning that the ultimate outcome will remain uncertain despite the clear momentum shifting in Keiko's favour.

Market outlook

Markets are pricing in a de-escalation of geopolitical tensions, supported by clear US signalling that an off-ramp is desired, despite ongoing Iran-Israel tensions and complications from Israel's activities in Lebanon. Notably, oil prices remain below USD100/bbl despite the Strait of Hormuz being effectively closed, confounding analyst expectations. Central banks are maintaining a hawkish stance, with inflation concerns elevated, though inflation swaps have moderated alongside oil prices. Federal Reserve (Fed) funds pricing shows a 50% probability of a September hike, while European yields have risen sharply, including 10-year OATs to post-2009 highs.

In equity markets, Asia's tech sector demonstrates strength driven by robust AI hardware demand and healthy earnings momentum, though broader indices lack breadth. The upcoming equity issuance wave—including IPOs for SpaceX, Anthropic, and OpenAI—may inject volatility; however, historical precedent shows that equity issuance upcycles have typically coincided with strong market returns. Today's market backdrop provides comfort, given robust earnings growth, solid inflows, and moderately supportive—though increasing—positioning levels.

For emerging market fixed income, positive flow dynamics persist as investor appetite remains strong, with hard currency funds leading inflows. While moderating oil prices provide near-term relief, central bank hawkishness—particularly in developed markets—will likely keep real yields elevated and limit EM spread compression. EM credit spreads remain historically tight, yet all-in yields offer reasonable value, particularly in commodity exporters. With elevated inflation concerns and ongoing central bank hawkishness, selective positioning in higher-yielding EM credit, combined with a focus on terms of trade beneficiaries in the EM local markets, remains the current market playbook.