Market Snapshot

Market Snapshot is a weekly view from our portfolio managers, offering sharp, thematic insights into the trends shaping markets right now.

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This week in numbers

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The proposed currency swap line offered to Argentina by the US Treasury.

The small-cap Russell 2000 Index hit an all-time high this week.

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The return on the MSCI Emerging Markets Index YTD.

Past performance is not an indictor of future performance.

Quote of the week

The backdrop for emerging markets has become increasingly supportive in recent months, with several macro and style-related headwinds now easing.

James Cook

Executive Director, Head of Investment Directors & Specialists, examines the recent outperformance of an in-favour asset class.

This week’s Market Snapshot

A dollar bazooka for Argentina

The US breaks out the big guns to help its LatAm ally.

For Argentina’s crisis-ridden economy, the cavalry arrived this week in the form of US Treasury Secretary Scott Bessent bearing promises of financial support. But will it be enough to convince investors to keep the faith?

A heavy local election defeat and a corruption scandal have called into question President Javier Milei’s ability to drive through much-vaunted free-market reforms.
Argentina’s benchmark Merval Index has fallen more than 30% this year and the value of the peso has hit a record low¹.
The US is looking at a US$20bn currency swap line with Argentina’s central bank and may buy Argentinian dollar-denominated bonds in the secondary market.

US Treasury Secretary Scott Bessent appeared to throw Argentina’s under-pressure President Javier Milei a lifeline this week with a commitment ‘to do what is needed’ to support Latin America’s third-largest economy.

Bessent’s comment came after weeks of turmoil following a heavy defeat for Milei’s coalition party, La Libertad Avanza, in local elections on 7 September, which, coupled with a corruption scandal involving a senior government advisor, have called into question the libertarian leader’s ability to drive through long-promised free-market reforms.

The local election defeat spooked investors and sparked a sell-off in Argentinian debt and equities. Prior to Bessant’s intervention, the country’s benchmark Merval Index extended losses to 25% for the year, while the value of the peso hit a record low. In response, the BCRA, the country’s central bank, spent more than US$1bn of its scarce foreign reserves propping up the country’s currency.

Figure 1

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On Monday, following his message of support, Bessent announced negotiations over a US$20bn currency swap line with Argentina’s central bank, adding that the US government was prepared to buy Argentinian dollar-denominated bonds in the secondary market. The news calmed investors’ fears, with the peso rebounding 6% and yields on Argentinian dollar debt falling back to 3.7% on the day².

For Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes, the key question is how far US support will go and whether other institutions will join with the US to shore up Argentina’s economy.

“Further support, whether direct or via institutions like the IMF, could be pivotal,” he says. “It’s not just about liquidity. It’s about restoring confidence. Stabilising inflation, preserving reserves, and enabling legislative reforms are all critical to attracting foreign investment. Argentina’s economic fundamentals, especially in energy, tech, and agriculture remain strong. But October’s legislative elections are also a key inflection point. A poor outcome could complicate reform efforts, though broad public appetite for change may still carry momentum. With credible US backing, Argentina has a real chance to shift from fragility to resilience.”

De Vito highlights how the wording of Bessent’s message echoed that of then-ECB governor Mario Draghi during the eurozone crisis that the central bank would do “whatever it takes” to prevent the euro from failing. “This time, for Argentina, it seems to have helped calm fears of a full-blown FX crisis,” says De Vito. “The US appears to view Argentina as a strategic partner, an opportunity to champion democratic reform and market liberalisation in South America.”

¹Source: Bloomberg 26 September 2025

² Source: Bloomberg 25 September

Continue reading this month’s Market Snapshots

Rate cut marks Fed's policy direction shift

Fast reading

Fed cuts rates by 25bps, lowering target range to 4-4.25%.
Move comes amidst signs of a cooling US labour market and controlled inflation.
Updated economic projections see two more quarter-point cuts this year, and one apiece in 2026 and 27.

The Federal Reserve’s Federal Open Market Committee (FOMC) met this week against a backdrop of heightened economic uncertainty and mounting political pressure. In a long-awaited shift, policymakers on Wednesday announced a 25bps interest rate cut – the first since December 2024 – bringing an end to a pause in monetary policy moves¹. The decision takes the federal funds target range down to 4-4.25% – its lowest level since 2022.

The US Federal Reserve’s (the Fed) updated projections support a path of gradual cuts through year-end (as shown in Figure 1, below), with policymakers updating their economic projections for two additional decreases this year and one apiece in 2026 and 27. The cut in interest rates comes on the heels of new reports indicating a market slowdown in US hiring, while tariffs continue to exert only limited pressure on inflation.

Under pressure

This week’s meeting was notable not just for its policy move but also for the tense political environment surrounding the central bank in the lead up. US President Donald Trump’s attempt to remove Federal Reserve Governor Lisa Cook – a decision which was blocked by a court ruling this week – and his repeated demands for Fed Chair Jerome Powell to endorse a more aggressive rate-cutting regime have loomed large in recent weeks, exposing the Fed’s potential vulnerability to short-term political interests.

In a news conference following the announcement, Powell said the decision reflects a need to keep risks to the economy in line, describing it as a “risk management” cut.

Figure 1: Target rate probabilities

Stuck between the dots and a hard place

“The decision initially fuelled a rally in the US treasury market and a sell-off in the US dollar which briefly took the euro to a new four-year high. However, these moves were both short-lived following Powell’s cut description, which clashed with US treasury and dollar valuations as both had been pricing in a more aggressive Fed easing path” explains John Sidawi, Senior Portfolio Manager, International Fixed Income.

“The jury is still out on this tug of war between US growth and inflation. The impact of global tariffs has yet to be fully realised and the question of whether fiscal impulses will be sufficient to offset the drag of import taxes remains a large unknown. Much to the dismay of the FX and interest rate market the direction of US monetary policy remains very clear, but it was the journey that both markets mispriced yesterday,” Sidawi adds.

The jury is still out on this tug of war between US growth and inflation.

Sue Hill, Head of Government Liquidity Solutions, Federated Hermes notes that, while there was potential for drama, the FOMC meeting delivered few surprises: “As rate cuts go, this one was fairly painless.”

“The market didn’t quite know how to interpret everything – with initial swings in both the bond and equity markets before the day ended largely unchanged. I still expect two quarter-point cuts in October and December, targeting 3.50–3.75% by year-end and a terminal rate around 3%,” Hill adds.

Elsewhere…

The Bank of England (BoE) announced on Thursday it would hold interest rates steady at 4% – following August’s 25bps cut – as the central bank continues to tame above-target inflation. Figures released on Wednesday put UK inflation at 3.8% in the year to August.²

“There were no surprises from the Bank. Rate cuts need be “gradual and careful”, suggesting that the November cut is still 50/50. From here a tricky balance of monetary and fiscal policy is needed to revive the country from the current subdued growth,” explains Filippo Alloatti, Head of Financials, Federated Hermes.

No data was found

For more, read our H2 credit outlook.

¹ Federal Reserve Bank of New York, as at 17 September 2025.

² Office for National Statistics, as at 17 September 2025.

ECB holds rates as France struggles with debt crisis

Fast reading

French prime minister Francois Bayrou resigned this week after the National Assembly rejected his austerity budget in a no confidence vote
ECB president Christine Lagarde expressed confidence that policymakers in member states would want to reduce uncertainty, as the central bank elected to hold interest rates steady at 2%.
Elsewhere, Indonesia’s finance minister Siri Mulyani Indrawati was abruptly sacked on Monday in a move that will heighten uncertainty for investors.

The European Central Bank (ECB) held interest rates steady on Thursday, as the deepening crisis in the eurozone’s second-largest economy loomed large.

France’s government collapsed on Monday, leading to the loss of its third prime minister in just 12 months. Francois Bayrou resigned after the National Assembly rejected his austerity budget in a no confidence vote¹. President Emmanuel Macron appointed Sébastien Lecornu as the new prime minister on Wednesday².

Market reaction to the news was largely muted, and the benchmark CAC 40 index was up 1.3% over the course of the week³.

Amid widespread anti-government protests, Lecornu is faced with the same issue that brought down Bayrou after less than a year in the role – the poor state of France’s public finances.

France’s debt burden currently stands at around €3.3tn, representing 113.9% of GDP⁴. Debt is projected to rise to nearly 120% of GDP in 2026, according to the Organisation for Economic Co-operation and Development (OECD). The fiscal deficit was 5.8% of GDP in 2024, while the government is targeting a reduction to 5.4% in 2025⁵.

All of this means France is comfortably in breach of the European Commission’s agreed reference values of a 3% deficit ratio and a 60% debt ratio for member states⁶. The escalating crisis means that France may be on track to receive a downgrade to its credit rating, notes Mitch Reznick, Group Head of Fixed Income – London, Federated Hermes Limited.

“The French government has been squeezed by the left and the right. This remains a meaningful challenge and led to Bayrou being shown the door. On Friday 12 September, the country could very well see its credit rating downgraded by Fitch. The bond market is taking this all in with a bit of fraîcheur… for now. The difference between the French 10-year bond and the German equivalent has been cuffed around 80 basis points, close to the wides it hit when the confidence vote was originally announced, he says.”

“Meanwhile, as we have said before, we struggle to see how French risk can rally meaningfully in the near-term, which may up some investment opportunities,” he adds.

Figure 1: Yield spread – the difference between French-German 10-year yields

The governing council of the ECB elected to hold interest rates steady at 2% on Thursday. At a press conference, ECB president Christine Lagarde declined to comment on France specifically but expressed confidence that policy makers in member states would want to reduce uncertainty and operate within the ECB’s fiscal framework⁷.

The bond market is taking this all in with a bit of fraîcheur… for now.

No data was found

Indonesia changes course

Elsewhere, Indonesia is grappling with its own problems amid heightened economic uncertainty in Southeast Asia’s largest economy.

Finance minister Siri Mulyani Indrawati was abruptly sacked on Monday, following days of civic unrest, and was immediately replaced by economist Purbaya Yudhi Sadewa. The transition will likely heighten uncertainty for investors because of Indrawati’s longstanding role in shaping the country’s reputation for fiscal discipline.

“Indonesia’s strict fiscal posturing may have arguably limited its growth upside, and an increase in government spending may spur the creation of better paying middle class level jobs,” says Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes

“While we acknowledge the risks associated with staffing changes and a possible deviation from established proven policies, we also recognise the need for additional and more diverse economic growth. As such, we believe it’s too early to formalise a long- term view solely based on this week’s developments,” he adds.

For more information on EMD

¹ Vote de confiance : l’Assemblée nationale a désapprouvé la déclaration de politique générale du Gouvernement – Assemblée nationale

² The President of the Republic has appointed Sébastien Lecornu as Prime Minister. | Élysée

³ Source: Bloomberg.

⁴ At the end of Q1 2025, the Maastricht debt accounted for €3,345.4 billion – Informations rapides – 163 | Insee

⁵France: OECD Economic Outlook, Volume 2025 Issue 1 | OECD

⁶ Excessive deficit procedure – Consilium

⁷ PRESS CONFERENCE

Bond markets fret over rising budget deficits

Fast reading

A global sell-off this week saw the 30-year US Treasury yield touch 5%, UK government borrowing costs hit highest their levels since 1998, and Japan’s 30-year government bond yield reach record high.
Many countries face the mounting cost of servicing debt interest payments which, in turn, threatens to squeeze government spending. At the same time, investor demand for long-dated sovereign debt appears to have softened.

Bonds endured another volatile week as investors continue to fret about how rising government debt combined with stubbornly high inflation will impact long-term borrowing costs.

A sell-off on Wednesday pushed Japan’s 30-year government bond yield to a record high while the yield on the US 30-year Treasury touched 5% before both assets retreated.

In the UK, 30-year government borrowing costs reached their highest levels since 1998 this week.

Figure 1: 30-year sovereign yields on the rise

An uncertain economic backdrop has pushed up long-term government bond yields in comparison to those on the short end, which are typically more linked to central bank policy rates.

As a result, many countries face the mounting cost of servicing debt interest payments which, in turn, threatens to squeeze government spending. At the same time, investor demand for long-dated sovereign debt appears to have softened.

“To navigate the current global bond market sell-off, it’s important to understand the key drivers at play – and they are multiple: political uncertainty, particularly in Europe, and persistent budget deficits across major economies,” says Mitch Reznick, Group Head of Fixed Income – London, Federated Hermes Limited.

“We’re not seeing strong momentum toward shrinking budget deficits and, with summer over, the increase in supply and lack of appetite from both the US and Europe is impacting yields at the long end of rates curves.”

Compounding the situation, inflation numbers remain stubbornly above central bank targets and appears to be creeping upwards in a number of countries.

No data was found

Fed easing looms

In the US, weak jobs data released this week added to expectations that the Federal Reserve will cut interest rates at its meeting later this month and could move more aggressively on policy easing .

“Some of these effects are temporary, while others reflect deeper, longer-term shifts,” says Reznick.

“In the near term, long-end funding costs for corporates will be higher. We’ve had rates steepeners in place for a while, and now we’re evaluating whether it’s time to unwind those positions or even reverse them. Certainly, the front end – from the belly to the front, across credit and fixed income – remains a relatively stable place, albeit somewhat crowded.”

In the near term, long-end funding costs for corporates will be higher.

Mo Elmi, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes, says that, despite emerging market (EM) sovereign debt and corporate credit offering a higher spread cushion compared to other fixed income asset classes, EM credit has not been immune to the global bond market sell-off.

“The impact [of the sell-off] has not been uniform across EM debt. Bonds issued by tight-spread investment-grade issuers, which have leveraged their strong credit profiles to issue long-dated securities, are more vulnerable to the sell-off at the long end of the curve,” Elmi says.

“In contrast, bonds from high-yield frontier issuers, which tend to issue in the short-to-intermediate part of the curve, will be less exposed to this dynamic.”

For information on Credit

BD016469

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This week in numbers

A dollar bazooka for Argentina

Fast reading

Under pressure

Figure 1: Target rate probabilities

Stuck between the dots and a hard place

The jury is still out on this tug of war between US growth and inflation.

Elsewhere…

Fast reading

Figure 1: Yield spread – the difference between French-German 10-year yields

The bond market is taking this all in with a bit of fraîcheur… for now.

Indonesia changes course

Fast reading

Figure 1: 30-year sovereign yields on the rise

Fed easing looms

In the near term, long-end funding costs for corporates will be higher.

Sustainability.
We mean it.

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This week in numbers

A dollar bazooka for Argentina

Fast reading

Under pressure

Figure 1: Target rate probabilities

Stuck between the dots and a hard place

The jury is still out on this tug of war between US growth and inflation.

Elsewhere…

The bond market is taking this all in with a bit of fraîcheur… for now.

Fast reading

Figure 1: 30-year sovereign yields on the rise

Fed easing looms

In the near term, long-end funding costs for corporates will be higher.

Sustainability. We mean it.

Your preferences

CONNECT

Sustainability.
We mean it.