Global Strategy "EM Credit Mid-year Outlook" Mevorach

Research evidence excerpt

Global Strategy "EM Credit Mid-year Outlook" Mevorach

Global Research

1 July 2026ab

Global Strategy Global Strategy

Emerging MarketsEM Credit Mid-year Outlook

Nimrod Mevorach

Strategist

A fresh look at EM credit following oil price normalizing, a new Fed Chair and ever nimrod.mevorach@ubs.com

+44-20-7567 0779

challenging valuations.

Roque Montero

Lessons from 1H26: HY "convexity" and oil look through Strategist

roque.montero@ubs.com

EM credit performed well in 1H26 (+2.5% YTD index return) despite the Middle East +1-203-719 2112

conflict and in the context of a slightly negative YTD return for EM local bonds. Three

lessons. First, counterintuitively, HY exhibited "convexity" - outperforming IG both on Manik Narain

the "way down" (during the US/Iran conflict) and on the "way up" (since the MoU).

manik.narain@ubs.com

Second, EMBI GD bottom-to-top spreads widening during the US/Iran conflict was +44-20-7568 3635

relatively modest (at 43bps) - vs 60bps-107bps in the previous three pullbacks since

2023. Third, markets moved quickly beyond the oil shock. By end-Apr, EM spreads were Rafael De La Fuente

Economist

lower although oil prices were still ~$50/bbl higher from pre-conflict levels - defying the

rafael.delafuente@ubs.com

typical positive correlation between spreads and oil prices in the past 20y period (Figure +1-203-719 7127

21EMspreadsmanagedtotightenevenwhenoilpriceswereupalmost$50/bl-defyinghistoricalpaterns).

Gyorgy Kovacs

Spreads resiliency to last into 2H26; expect index total return of ~2% by YE

gyorgy.kovacs@ubs.com

A combination of factors explain 1H26 spreads resiliency. Among those, geographical +44-20-7568 7563

diversification (US portfolio allocation to EM bonds around a 6y high) and crossover

Anna Zadornova

inflows, look set to persist.