EM Credit Monthly: Building on Strength

Research evidence excerpt

EM Credit Monthly: Building on Strength

Deutsche Bank

Research

Emerging Europe Credit Date

Latin America 2 July 2026

Middle East EM Credit Monthly

Sub-Saharan Africa

Building on Strength

Christian Wietoska

Performance: EM credit extended its gains in June, returning around 0.8% as

Strategist

continued spread tightening offset a modest rise in UST yields. HY (1.2%) again +44-20-754-52424

outperformed IG (0.3%), while LatAm led regional returns, ahead of Asia and

CEEMEA. Country performance was more mixed, with Argentina, Bolivia, Iraq, Sri Yigit Onay

Economist

Lanka and Pakistan recording the strongest spread tightening. YTD, returns rose to

+44-20-75410227

3.3% (EMBIGD), with Gabon, Ukraine, Bolivia, Sri Lanka and Angola leading

performance. Naman Mishra

Research Associate

Valuation - Top Down: Our enhanced PCA model shows PC1, the common global

factor, now drives 68% of asset class returns, up 5pp in 1m, exceeding its 46% long- Ankit Jain

term average. PC1 and PC2 together explain almost 90% of returns. Our model Research Associate

indicates Gold, oil, WGBI, and EMFI (FX-unhedged) are cheap, offering catch-up

potential. EM & European equities, DXY, EMHY Credit, and EMFX appear rich. In

EM, local fixed income (FX-unhedged) has significant catch-up potential, however,

not EM credit.

Valuation - Asset Class: Our model shows EM credit as marginally rich post-Iran

peace deal. EMBI is 6bps overvalued (235bps current vs. 241bps predicted), with

a 2.2% base-case return and 248bps forecast for end-2026. EMHY is 16bps

overvalued (280bps current vs. 296bps predicted), but end-2026 forecasts are near

current levels, yielding 2.7%. EMIG is 5bps undervalued (84bps current vs. 79bps

implied) with a 1.4% return, but a 93bps forecast for end-2026 due to US rates

sensitivity.