Frontier & EM daily, 26/05: EM bonds firm; oil volatility persists

• US “self-defence” strikes in southern Iran and ongoing negotiations keeps oil markets volatile

• Senegal risks rose after President Faye sacked PM Sonko, likely delaying IMF talks

• Sri Lanka 2035s outperformed ahead of the IMF review while the central bank raised rates by 100bps

  
  

EM eurobonds posted broadly positive returns on Friday before trading largely flat yesterday. The US military carried out “self-defence” strikes in southern Iran, targeting missile launch sites and boats laying mines, while saying it was acting with restraint during the ceasefire. At the same time, President Trump said negotiations were progressing and proposed that any Iran deal should also require several countries to join the Abraham Accords, potentially adding new diplomatic complications.

Oil prices fell c10% yesterday to US$93.4/bbl, before gaining c2% today to US$95.5/bbl at the time of writing, as uncertainty around US-Iran negotiations continued to keep markets cautious. We wrote yesterday that while markets may initially welcome reduced fighting and improved Hormuz flows, unresolved issues around Iran’s nuclear programme, sanctions, missiles, proxies and regional security mean the post-war environment remains fragile and uncertain.

Europe, Middle East

• Ukraine's 4½ 2036 eurobonds climbed 0.9% on Friday, supported by growing optimism that Russia's invasion is losing steam. NATO Secretary General Rutte said Ukraine is regaining territory "in net terms," while Ukraine and its allies are reportedly increasingly confident Russia's spring offensive has stalled. Ukraine's Foreign Minister Sybiha said the current US-led peace track is "on pause" and Kyiv is seeking a new format, including a possible Zelenskyy-Putin meeting. Zelenskyy separately said he is seeking to revive diplomacy as US attention remains focused on Iran. Lawmakers are likely to vote next week on an IMF-supported bill overhauling taxation on foreign parcels, with a vote expected Tuesday or Thursday. The EU has also tied some payments to the same reform.