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

Market moves this week were once again dominated by conflicting headlines around the war in Iran, but the market chose to look through these as investors took a positive view around the chances of further diplomacy that may ultimately put an end to hostilities. This resulted in the S&P 500 gaining +3.6% and the Euro Stoxx 50 gaining +4.1%, while Emerging Markets (EM) equities gained +7.9%. The US rates curve bear steepened with 5-year yields flat and 30-year yields up 3 basis points (bps). 10-year US real rates were 2bps lower to end the week at 1.93%.

In EM credit markets, spreads were 13bps tighter for corporates and 28bps tighter for sovereigns, while total returns were up +0.9% and up +1.8%, respectively. In the corporate space, the real estate and transport sectors outperformed, while the diversified and infrastructure sectors underperformed. In the sovereign space, the notable performers were Ukraine and Egypt. The biggest underperformers were Mozambique and Papua New Guinea.

In the EM local markets, returns were up +2.8% with foreign exchange (FX) contributing +1.7% and rates +1.1%. In the FX space, outperformers were the Hungarian forint, Chilean peso, and Mexican peso, while underperformers were the Indonesian rupiah and Turkish lira. Meanwhile, in the rates space, South Africa and Turkey outperformed and Serbia underperformed.

Market highlights

• Hungary's opposition Tisza Party secured a decisive victory in parliamentary elections held on 12 April 2026, ending Viktor Orbán's Fidesz party's 16-year rule. Tisza won a two-thirds super-majority that enables constitutional amendments. Fidesz won 55 seats and the far-right Our Homeland party secured 6 seats. Tisza, positioning itself as a pro-EU, anti-corruption alternative to Fidesz, has committed to meeting Maastricht criteria by 2030 for eurozone membership and restoring the rule of law. The market has responded positively, with the Hungarian forint strengthening and rates materially lower in yield, partly reflecting expectations of resumed EU funding flows (currently worth ~3% of GDP annually) and improved EU-Hungary relations.

Market outlook

Markets have continued to rally on growing confidence that the US and Iran are moving towards de-escalation, with both sides signalling a potential return to negotiations. Oil has stabilised in the mid-USD90s and the forward curve still points to lower prices, reinforcing the market's current view of a temporary disruption rather than a sustained supply shock. This has supported a recovery in risk assets, tighter credit spreads and lower core yields, helped by softer US inflation data. However, the backdrop remains fragile as the US blockade is still in place, shipping through the Strait of Hormuz is constrained, and the current ceasefire only has a week left to run. Hence, while markets are looking towards an off-ramp, the risk of renewed escalation—and a return of stagflationary concerns—remains.

From a macro perspective, even with de-escalation, elevated energy prices and trade disruption will continue to weigh, particularly on importers. The recent rally in rates reflects a partial unwind of inflation fears, but central banks are likely to remain cautious. Front-end yields should have scope to move lower if tensions ease, but volatility across rates and commodities is likely to persist.

In emerging markets, the near-term tone has improved, with tighter spreads and more stable FX. However, dispersion remains high, and we expect that commodity exporters, particularly in Latin America, will remain better supported, while Asian importers will lag given that they are more exposed to any renewed oil strength. In credit, spreads are back towards tight levels, but all-in yields remain higher than they were pre-war and we expect this will continue to support total returns.