September Review: September was dominated by a surge in oil prices and increased expectations of aggressive rate hikes, which led to a material sell off in core rates. While the S&P 500 and MSCI EM were only slightly negative over the month, at -0.45% and -0.84% respectively, the 10-year US Treasury surged to 5.28%, an almost 25 year high, and the Bund reached 3.59%, a level not seen since 2008. Following further escalation in the Middle East, with the Houthis in Yemen broadening strikes to Saudi energy facilities and US forces hitting Iranian oil tankers, Brent crude moved back above $100, reaching a high of $109.35, before ending the month at $103.5, following hopes of renewed talks between the US and Iran. The Fed raised rates for the first time in three years, a widely expected 25bps move to a range between 3.75% and 4.00%, which temporarily stabilised rates market before more technical factors led to further weakness. The Xi-Trump meeting passed without generating material headlines, as the focus remains on geopolitics in the Middle East and inflation pressures. Although EM hard currency credit spreads were broadly resilient through most of the month they widened in the final week, with overall benchmark performance materially negative across all sub-asset classes following the rates sell off. In credit, the sovereign benchmark was down 3.49% and the corporate index declined 2.13%, while in local markets the index was down 2.33%. YTD performance remains positive in local markets and corporate credit, but it turned negative in sovereign credit, at -0.67%. Sovereign spreads widened across most regions, with Latin America being the biggest underperformer, except for Brazil, which outperformed peers. Most sectors similarly widened in the corporate space, with Transport and Metals & Mining being the worst performers. In local markets, rates detracted 0.64%, with most currencies following the move up in core yields, except for BRL and CNY, which positively contributed. FX detracted 1.70%, with the biggest move coming from MXN, following the risk of a US diesel export ban; Central European currencies, such as CZK and PLN, and South Asian ones, like MYR and THB, were also weak because of higher oil prices and treasury yield moves. Looking to EM news: China - announced a CNY360 billion (USD54 billion) capital injection into its largest state banks and insurers, including ICBC, Agricultural Bank, China Life, and policy lenders through special government bonds and state tobacco investments. The move addresses squeezed profitability (net interest margins at 1.41%) and aims to bring Chinese bank capital ratios (~10%) closer to Western peers (15%+). This marks Beijing's first major insurance-sector recapitalisation in 20 years. Separately, both the official and private manufacturing PMIs returned to expansion in September, with the official estimate back above 50 for the first time since June, though the pick-up remains led by external rather than domestic demand. Indonesia - president Prabowo Subianto removed Finance Minister Purbaya Yudhi Sadewa after barely a year, installing technocrat Suahasil Nazara — the third finance minister in two years. Nazara has pledged to keep the deficit below 3% of GDP, which markets read as a step back towards orthodoxy following Purbaya's unsettling pro-spending approach. Argentina - assets came under intense pressure late in the month as investors grew cautious around President Milei's October 2027 election prospects. Despite it being a year away, the prospect of a stronger showing from Axel Kicillof triggered local selling, coinciding with broader market stress as macro hedge fund stops were hit in core rates. International selling followed, leaving Argentine asset price action somewhat divorced from fundamentals. Turkey – Tera, a Turkish brokerage, became the center of a massive fund scandal after redemption failures triggered the liquidation of 131 investment funds holding an estimated $20 billion of investor money, sending Turkish stocks into a bear market. Authorities have arrested multiple executives and frozen related assets, however, Fitch stated it does not anticipate a significant sovereign credit impact from the crisis. Central Bank Activity - Brazil’s central bank cut rates again to 13.75% mid-month, underlining the carry cushion, though each step of DM tightening narrows this advantage. Meanwhile, the Central Bank of Colombia hiked rates by 25bp to 12.25%, as did the South African Reserve Bank, raising the benchmark repo rate to 7.25%. Other central banks meeting this month, such as Chile, Mexico and Turkey, kept rates on hold. Outlook August CPI and PPI in the US both pointed to firmer underlying pressures, and over September the oil move became increasingly difficult to dismiss as a temporary risk premium. The month concluded with a value at risk (VAR) shock driven by a global duration sell-off. Significantly, this happened even as near-term Fed expectations softened, NY Fed President Williams pushed back on October urgency, and weaker US data (job openings at a five-month low, consumer confidence at its lowest since 2014) pared October hike odds below 50%. The curve steepened markedly, underscoring that this is increasingly a global duration story about persistent inflation, heavy government and corporate supply, and the term premium investors demand, rather than a repricing of the next few Fed meetings. We anticipate the markets in the coming months will be dominated by the global macro backdrop. On the geopolitical front, news around the Iran conflict and potential trajectory for oil prices will remain in focus, as will the ongoing volatility in core rates. We expect the FOMC to pause in October but hike rates in December. Despite the volatility in the short term and scope for negative headlines, our medium term outlook remains broadly constructive on EM credit, although we are favouring shorter-duration, higher-quality carry and event-driven opportunities while core rates remain unsettled. In local markets, selectivity matters most; high real yields, credible policy frameworks and limited external vulnerability are the key filters. Better value is seen at the front end of the curve than the long end, where fiscal supply and term premium offer the least protection. The main risks heading into October are a breakdown in fragile Iran diplomacy that re-ignites the energy shock or a further leg higher in the dollar that keeps local markets on the back foot. After weeks of rising oil and yields, however, the balance of risks is beginning to look more symmetric, particularly if oil continues towards $80–85 and the rate cycle proves near its peak. In the coming weeks markets will be closely monitoring the Brazil Presidential elections outcome, with the first round due to take place on October 4th, and a run-off widely expected on 25 October. The race is expected to be tighter than markets initially predicted, especially given the considerable noise around corruption scandals dominating the headlines. The winner inherits a challenging fiscal picture requiring consolidation to unlock sustainable rate cuts. Markets generally view a Bolsonaro win more favourably, particularly in the local market, perceiving him as more fiscally prudent. The announcement of the S&P rating review for Romania is expected for October 2nd, we believe there will be no change at this stage and the president will be given more time to form a new government, we will monitor over the coming months leading to the next rating reviews cycle, given the potential negative outlook. After a weak month for the asset class, we remain tactical and ready to take any opportunity the market could offer during this phase of dislocation from fundamentals. We are also carefully monitoring and adding or removing hedges where we see fit. Download this article for the full market highlights, market outlook, and latest performance. 1Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index JPMorgan EMBI Global Diversified Investment Grade Index, JPMorgan EMBI Global Diversified High Yield Index. 1Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index JPMorgan EMBI Global Diversified Investment Grade Index, JPMorgan EMBI Global Diversified High Yield Index.