Tug of war on the narrative continues, but carry buys time

This week saw more of the same market jitters, driven by higher global rates, elevated oil prices, and heated geopolitics, raising questions about fiscal stability and the sustainability of robust macro growth. Stabilization in US Treasury rates (bull flattening of -6bp to -2bp across the curve) allowed a relatively better tone across EM, with inflows returning after three weeks of outflows (+$930mn, fully offsetting the prior week's -$930mn outflow). CEMBI spreads widened +3bp to 182bp, with IG (+4bp to 110bp) and C-rated bonds (+97bp to 1,492bp) lagging the tightening in BB/B spreads;