At Any Rate EM Fixed Income: Weighing the impacts of Middle East escalation
Jun 20, 2025
Jonny Goulden and Saad Siddiqui delve into the minimal impact of Middle East tensions on emerging market fixed income assets. They analyze historical investment strategies influenced by this volatility, and the perception of the US dollar as a safe haven. Rising oil prices and their inflation effects in emerging markets are examined alongside Brazil's unexpected interest rate hike. The podcast also covers market reactions in sovereign credit default swap spreads, revealing stability in broader indices despite regional risks.
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Surprising EM Market Calm Amid Conflict
- Emerging Market (EM) fixed income and risk appetite have shown surprisingly little reaction to the Middle East conflict.
- Markets seem to trade on the base case that this conflict will be local and relatively contained over weeks, not months.
EM Outlook Hinges on US and Oil
- The EM outlook remains primarily influenced by US trade, tariffs, and the global economic cycle rather than Middle East tensions.
- Major market shifts would be driven by significant oil price spikes or prolonged disruption, which are not the base case.
Dollar Safe Haven Status Holds
- The dollar retains its safe haven status despite recent Middle East tensions.
- EMFX weakness reflects position unwinding rather than a big flight to quality or a lost dollar safe haven status.