Hard currency debt:
Credit Spreads: Rich
- The current excess spread of 86 bps is in our first quintile of attractiveness
- Historically, an excess spread in this quintile has been associated with a subsequent mean 2‑year annualized credit return of -1.9% (above the risk-free rate)
- This implies a valuations-based negative assessment
USD Rates: Neutral
- Our “deviation from fair value” for USD interest rates (page 8) shows a modest deterioration in the attractiveness of USD duration, with current levels slightly below fair value
Local currency debt:
FX: Very Attractive
- At +1.7%, our expected spot return indicator lands in the most attractive fourth quartile
- Mean subsequent GBI-EMGD weighted spot return has been +6.8% for the fourth quartile and +5.1% for the third quartile
Local Rates: Very Attractive
- EM local rates maintained an attractive valuation gap versus U.S. interest rates
- At +0.8%, this is in our most attractive fourth quartile, where the mean subsequent EM/U.S. return differential has been +4.1%
Blended currency debt:
50%/50% Strategic Blend Portfolios: Currently Tilted Max Local (70%) vs. Hard Currency (30%)
- Given the unusually extreme relative valuations, blended currency benchmarked portfolios are currently tilted to max local currency debt
Disclaimer: The views expressed are the views and understanding of the Emerging Country Debt team through the period ending December 2025 and are subject to change at any time based on market and other conditions. While all reasonable effort has been taken to ensure accuracy, no representation or warranty for accuracy is provided nor should be assumed. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
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