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 markets were dominated by ongoing investor concerns around the AI trade. This resulted in the S&P 500 losing -0.6% (with large dispersion within the index as technology underperformed) and the Euro Stoxx 50 gaining +1.0%, while emerging market (EM) equities lost -0.7%. The US rates curve saw a bull steepening, with 5-year yields down 9 basis points (bps) and 30-year yields down 1bp. 10-year US real rates were 6bps lower, ending the week at 2.59%. In EM credit markets, spreads were 9bps wider for corporates and 3bps wider for sovereigns, while total returns were +0.1% and +0.4%, respectively. In the corporate space, the pulp & paper and telecommunications sectors both outperformed, while the transport and real estate sectors underperformed. In the sovereign space, notable performers were Senegal, Angola, and Mozambique. The largest underperformers were Argentina and Venezuela. In EM local markets, returns were down -1.1% with foreign exchange (FX) contributing -0.8% and rates contributing -0.3%. In the FX space, outperformers were the Dominican peso, Malaysian ringgit, and Chinese renminbi, while underperformers were the Brazilian real, Colombian peso, and Mexican peso. In the rates space, Hungary, Turkey, and Thailand outperformed, while Brazil, Indonesia, and Dominican Republic underperformed. Market highlights It was a busy week for EM central banks. Egypt delivered the biggest surprise, raising its key deposit rate by one full percentage point to 20.0%, its first increase since March 2024. The Egyptian pound has hit record lows and worries have grown about regional conflict, in turn pushing up prices. Pakistan also tightened policy, lifting rates by half a percentage point to 12.0% to address stubborn inflation and a weaker currency. Thailand kept its rate at 1.0% for a fourth straight meeting, with all members agreeing, as inflation remains under control and policymakers want to keep supporting growth. Colombia held rates at 12.25% on a narrow 4-3 vote, as signs of a slowing economy outweighed the minority's push for a hike. Chile also held steady at 4.5%, its seventh consecutive hold, though officials warned that inflation pressure from outside the country is building. Market outlook The geopolitical premium in oil markets has also moderated recently with Brent crude retreating towards USD103/bbl from last week's highs above USD115, as renewed diplomatic efforts raise hopes of progress towards a US-Iran agreement. As ever, the situation remains fluid and further escalation cannot be ruled out, particularly with the US midterms now behind us. Elsewhere, European growth remains under pressure, with French political uncertainty and tighter bank lending conditions adding to concerns. Credit markets are also showing increasing differentiation, particularly among AI-related borrowers and cyclical European corporates, although the weakness remains relatively contained rather than systemic, as evidenced by the iTraxx Crossover index which remains contained in the low to mid 300s spread level. If we see a more sustained period of weakness in oil alongside a softer dollar and lower yields (an outcome supported by US midterm results) this would provide meaningful relief to inflation pressures and a more favourable backdrop for EM. Asset prices in Brazil have begun to stabilise following the sharp repricing triggered by Lula's unexpected re-election, although the fiscal outlook and composition of the new economic team remain important uncertainties. Elsewhere, weakness in EM credit has been concentrated in selected lower-rated sovereigns and corporates rather than reflecting a broader deterioration in fundamentals, while attractive real yields continue to support local markets. The key risks remain renewed Middle East escalation, further pressure on global yields and a more pronounced deterioration in credit conditions, but we ultimately remain broadly constructive on both EM credit and local debt into year-end, seeing opportunities where we believe technical selling has created dislocations relative to fundamentals. Download this article for the full market highlights, market outlook, and latest performance.