This edition includes:
- Market background
- Top-down views and outlook for the asset class
- Focus article: Riding the EM rate-hiking cycle - how debt investors can harness behavioural biases
- Regional highlights and corporate credit market review
Our EM debt experts summarise market developments across the sovereign debt universe in July and outline what’s taken place in the EM corporate credit market.
The fast view
Market background
Bond yields across developed markets retreated in response to growing expectations of a global recession. This helped provide some respite across parts of the EM fixed income universe. Messages accompanying a 75bps US rate hike were interpreted as somewhat dovish, which boosted risk assets.
Africa
In Egypt, headline inflation eased thanks to lower food prices. Also, talks with the IMF are ongoing. Ghana’s parliament approved a loan facility agreement with the African Export-Import Bank. This, plus a privatisation push, will be key to securing IMF support.
Asia
Inflation continues to rise in Asia, above consensus expectations in some cases. In China, policymakers dropped the 5.5% growth target, re-iterated that property is for living and not for speculation, and confirmed that there are no plans to move away from the zero-COVID policy.
Latin America
The fast depreciation of the Chilean peso prompted the central bank to intervene aggressively in the currency market. Inflation data in Brazil was slightly lower than expected. Argentina’s bond market weakened after the finance minister resigned over tensions between the president and vice-president.
Central and Eastern Europe
Economic activity data was generally on the soft side and inflation data was more mixed after the consistent upside surprises seen in the previous months; this allowed bond markets to rally.
Rest of Europe, Middle East and Africa (EMEA)
The apparent ‘weaponisation’ of gas exports became a more prominent feature of Russia’s war tactics, pushing up gas prices and fuelling concerns over Europe’s economic outlook. Ukraine’s government devalued the hryvnia peg with the US dollar by 25% due to the continuing drop in dollar reserves.
EM corporate debt highlights
Much like most of fixed income assets, EM corporate debt staged a partial rally in July, with the overall index posting a 1.0% return, and high yield outperforming investment grade (IG). Most of this positive return came from the rally in underlying rates, given the less hawkish tones from the US Federal Reserve; credit spreads on investment-grade debt actually widened, although high-yield spreads tightened.
