GEMs Flow Talk: Supply picks up as EM & DM investors show appetite for EM credit

Research evidence excerpt

GEMs Flow Talk: Supply picks up as EM & DM investors show appetite for EM credit

ted in 2023-25: Ethiopia ($1bn out of $1.3tn outstanding=0%), Dec 23

Two consecutive years without any sovereign defaults (2024-2025)

• Of EUR-denominated sovereign bonds, only 2% are in default or rated CCC or below.

• Since the pandemic started, 2025 has the highest % of sovereign upgrades vs

downgrades taking into account rating actions only (not outlook changes, 76%)

EXD Issuance

• Net issuance was positive in 2025 at $133bn (4.4% of debt outstanding), a reversal of • China EXD new issuance as % of all issuances dropped significantly from 48% in 2018 to

cum negative net issuance since Feb 2022-Dec 2024 (corp & sov ) at just 17% in 2025

-$341bn (-12%), which is also net of coupons

• Market has been growing steadily up to US$3.0tn face of index eligible debt today, $1.5tn • US IG Corp is very big ($9.3tn). EM Sov & Corp IG ($1.5tn) is just 17% of US IG size

sovs & $1.5tn corps, sizable compared to $9.4bn US IG corps and $1.5 bn US HY corps US HY is very small ($1.4tn). EM Sov & Corp HY ($0.8tn) is 57% size of US HY size.

• Considering only USD index eligible bonds: EM Sov HY + Corp HY is 59% of USHY corps, a • 18% of sovereign foreign currency index debt is denominated in EUR vs 82% in USD.

good size. EM Sov HY is 34% of USHY corps

• Since there is not enough IG issuance. EM sov + Corp IG outstanding is 17% of US IG Corp • Of total YTD issuance, 18% is from GCC and 10% is from Saudi Arabia issuers, who have

outstanding. IG investors may need to add EM bonds to satisfy demand. become among the largest suppliers of EM debt.

• Our 2026 forecast total sovereign & corporate issuance is $671bn • GCC has risen to 33% of EM $ IG sovereign bonds (in DGIG index), increasing concentration