Mid-year review: love for HY carry amid tight spreads globally

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Mid-year review: love for HY carry amid tight spreads globally

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EM Corporate Strategy

Mid-year review: love for HY carry amid

tight spreads globally

Yield takes the lead amid tight spreads 17 July 2026

With EM corporate spreads at 138bps and limited room for broad compression, we EM Corporate Strategy

believe 2H26 becomes less about chasing beta and more about harvesting still elevated Global

yields. Strong fundamentals, higher ratings and supportive technicals have been drivers Anne Milne

of tight EM spreads, but their historically strong starting points leave limited room for Research Analyst

further improvement. This implies that the spread path is therefore likely to be shaped BofAS+1 646 855 4096

by macro developments and relative value to US rather than EM itself. At the same time, anne.milne@bofa.com

absent a major macro disruption, FI demand (helped by US household wealth creation) Bruno Larcher

should help anchor US spreads and support EM through the relative value channel. ResearchMerrill LynchAnalyst(Brazil)

Returns favor HY, with spread upside in Latam and Asia +55bruno.larcher@bofa.com11 2188 4010

We forecast a 5.2% total return for EM corporates in 2026E, modestly below our initial GEMS Corporate Credit Rsch

5.6% estimate due to weaker-than-expected UST performance. The return mix now BofAS+1 646 855 4096

favors HY more decisively: we expect 9.0% for HY versus 4.3% for IG, supported by See Team Page for List of Analysts

higher carry, stronger YTD performance and selective spread compression. LatAm HY

remains the standout, with a forecast return of 10.6%, followed by Asia HY at 8.7%. We

expect LatAm HY spreads to tighten to 300bp from 318bp and Asia HY to 270bp from

321bp, while IG spreads should widen modestly across EM.