EM Fixed Income: Summer of carry, but getting crowded?

Emerging market (EM) fixed income performance remains tethered to US Treasury yield dynamics and global macroeconomic trends. While US yield curve steepening has pressured rates, EM markets demonstrate resilience due to improved structural funding positions and robust current account balances. EM foreign exchange (FX) shows greater sensitivity to 10-year US real yields than to oil prices or curve steepness, maintaining a constructive outlook. Credit markets remain range-bound, though rising all-in yields and increased competition from hyperscaler issuance require careful monitoring of refinancing risks. Frontier markets have seen a significant surge in foreign positioning, particularly in Egypt and Nigeria, driven by favorable terms of trade and more orthodox monetary policies. Despite these gains, caution persists regarding duration exposure due to medium-term inflation risks stemming from El Niño and agricultural input costs, even as upcoming index launches promise further capital inflows.