Alma Gramercy Emerging Markets Debt

Market Review and Outlook

July brought a renewed energy shock that reversed much of the prior month’s relief and reasserted inflation as the market’s dominant concern. The U.S.-Iran ceasefire framework broke down early in the month, and the conflict widened after Tehran-backed Houthi rebels declared a naval blockade of Saudi Arabia and claimed attacks on two Saudi oil tankers in the Red Sea. Brent crude futures crossed $100 per barrel for the first time since May before easing back to $90 by month-end. Both Brent and WTI finished the month up more than 20%. Higher energy prices lifted inflation expectations and pushed Treasury yields higher through the month. At its July 29 meeting, the second under Chair Kevin Warsh, the Federal Reserve held the federal funds rate at 3.50%–3.75% on a 9-3 vote, with regional presidents Beth Hammack, Neel Kashkari and Lorie Logan dissenting in favor of tighter policy. The Chair’s press conference left markets questioning the Committee’s resolve to contain inflation, extending the sell-off in long-dated Treasuries and weighing on the dollar into month-end. The 10-year yield closed 27 basis points higher at above 4.7%, its highest level since January 2025, with the 30-year up 32 basis points, while the dollar softened 1.3% on the DXY. Against this backdrop, the Fund (I USD Acc) returned approximately -1.50% in July.

Return dispersion across the EM debt complex was driven almost entirely by the split between rate-sensitive dollar assets and currency-driven local markets. EM hard-currency sovereign bonds returned -1.42%, as the surge in long-end Treasury yields weighed on the longest-duration, investment-grade-heavy segments of the market: investment grade (-2.04%) materially underperformed high yield (-0.86%), and the 10+ year bucket fell 3.39% against a return of +0.36% for 1-3 year paper. EM hard-currency corporate bonds proved more resilient given their shorter duration, returning -0.48%, with high yield (-0.03%) essentially flat and investment grade (-0.80%) again bearing the brunt of the rates move. EM local-currency sovereign bonds were the only segment to post a positive return at +0.30%, as dollar weakness translated directly into FX gains. South Africa (+5.25%), Chile (+3.32%) and Poland (+3.03%) led, in each case powered predominantly by FX, while lower-beta Asian markets lagged and capped the index-level gain.

Fund

Fund performance in July was shaped primarily by duration positioning rather than credit selection. Contributions came from local-currency sovereign holdings in Colombia and Mexico, supported by currency strength and elevated real rates. In Colombia, the central bank held its policy rate in July against expectations of a hike, judging that further tightening risked driving additional appreciation in an already strong peso. Offsetting these gains, the Fund’s longer-dated holdings came under pressure as long-end U.S. rates rose sharply. The most significant detractors were long-duration hard-currency positions, including Indonesia 2049s, Petronas 2061s, Saudi Aramco 2070s and Uruguay 2055s, alongside long-dated Brazilian local-currency exposure, where the long end of the curve sold off even as the central bank continued to ease.