5 minutes to read by  BlueBay Fixed Income team Feb 6, 2026

January Review:

• January saw a choppy start to the year, with there being a net benefit to risk assets. Overall emerging market performance remained differentiated, with commodities also outperforming. Headlines were once again dominated by geopolitics. The US made a brief but decisive incursion into Venezuela on Jan 3rd to arrest Nicolas Maduro and his wife. They will face trial on drug and weapons charges in New York. Iran faced deadly nationwide protests, extensive internet blackouts, and growing international sanctions, amid heightened US tensions and severe domestic instability. Geopolitical newsflow also surrounded Greenland, Trump cited national security in seeking Greenland, threatening 10% tariffs on European countries from February 1 (rising to 25% in June) unless the EU agreed to sell. There had been widespread backlash from European leaders. Trump reversed course shortly after, announcing a deal framework and cancelling the February 1 tariffs, providing market relief.

• Looking to EM, credit markets saw gains of +0.77% in corporates and +0.68% in sovereigns, predominantly driven by high yield assets. Spreads tightened by 15 bps for corporates and 9 bps for sovereigns. Within corporates, the Real Estate, Industrial and Metals & Mining sectors outperformed, while Infrastructure, Utilities and Consumer were the main laggards. In sovereigns, Latin America and Asia were the top-performing regions. Local markets also delivered positive returns, with the index up by +2.18% for the month. This was driven by strong performance in both FX and Rates, which returned +1.42% and +0.76% respectively. At the country level, Brazil, Chile and Mexico contributed to the positive strength. However, Thailand and Indonesia detracted from returns over the period.

Looking to Emerging Market News:

• Venezuela returned to the centre of investor focus in January following a major shift in political and diplomatic dynamics. The removal of President Nicolás Maduro and the installation of an interim administration prompted a rapid reassessment of sanctions policy by the United States. Subsequent announcements signalled a relaxation of certain oil related restrictions alongside proposed reforms to the hydrocarbons framework aimed at encouraging foreign investment and boosting production. While initial market reaction was constructive, investors remain cautious given operational constraints in the oil sector and ongoing legal and institutional uncertainties.

• Developments in Iran remained a source of geopolitical risk during the month. Elevated tensions with the United States and regional counterparts continued, alongside renewed domestic unrest and a deadly response from authorities. While oil exports remained broadly stable, markets remained sensitive to headlines given Iran’s strategic importance to global energy supply and shipping routes. Sanctions enforcement and diplomatic uncertainty continued to weigh on investor sentiment.

• In Colombia, continued security challenges involving armed groups and evolving fiscal reform discussions kept Colombian assets under pressure, with markets pricing higher risk premia amid political noise and slower growth expectations.

• Chinese authorities announced additional targeted stimulus measures focused on property sector stabilisation and infrastructure spending, including expanded credit support for local governments. While the measures fell short of a broad-based stimulus package, they were sufficient to stabilise sentiment across Asian EM assets and industrial commodity markets.

• Looking to Argentina, the government reiterated its commitment to fiscal consolidation and structural reform following progress on key legislative measures. Sovereign bonds performed relatively well as investor confidence in policy credibility improved, though social tensions and reform execution risks remain a medium term concern

• Latin America continued to see politically significant electoral newsflow. In Costa Rica, right-wing candidate Laura Fernández of the Sovereign People’s Party won the presidential election in the first round with roughly 48 per cent of the vote, avoiding a runoff and securing a majority in the Legislative Assembly, signalling potential policy continuity around security and law enforcement. Meanwhile in Brazil, Flavio Bolsonaro emerged as a credible right wing contender, consolidating conservative support ahead of the 2026 presidential election.

Outlook

Global macro markets continue to navigate a complex backdrop of geopolitical risk and evolving fiscal dynamics. Developments across regions from Greenland to Iran have kept risk sentiment finely balanced, while renewed fiscal concerns in Japan have reinforced the potential for sovereign debt dynamics to influence long-end rates and global yield curves. These factors have contributed to periodic volatility in rates markets, even as broader risk assets have remained resilient.

Equity markets have continued to perform well, supported by solid growth, resilient earnings and the financial easing impulse generated by a weaker US dollar. Recent comments from President Trump indicating comfort with a softer dollar have further reinforced this trend, providing explicit policy support for USD weakness and strengthening the tailwind for emerging market assets, particularly fixed income.

Investor positioning is increasingly aligned around two key objectives: diversification away from dollar-denominated assets and the pursuit of attractive carry in a world where developed market valuations remain elevated. Emerging markets are well placed on both fronts, offering compelling income opportunities alongside improving macro fundamentals.

EM local markets have been a primary beneficiary, with strong FX performance supporting disinflation, creating policy space for rate cuts and underpinning local bond and equity returns. EM credit has also benefited from attractive relative valuations versus developed market credit, drawing flows into higher-yielding opportunities. Select sovereigns, including Ecuador, have taken advantage of supportive market conditions to strengthen liquidity profiles through new issuance, helping to contain near-term default risks and suppress spread volatility. Overall, we expect emerging market fixed income to remain well supported into 2026, underpinned by favourable structural tailwinds and compelling relative value at current levels.

1 Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index

Horizons Expanded: Harness emerging market opportunities across asset classes.

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