Emerging market bonds

21 August 2026, 16:09 UTC Chief Investment Office GWM Investment Research For investors outside of the US

Egypt sovereign credit: Stronger policy credibility underpins resilience, but valuations look stretched Emerging market bonds Authors: Emre Tekmen, Analyst, UBS Switzerland AG; Tatiana Boroditskaya, PhD, Analyst, UBS AG London Branch

• Egypt's stronger policy framework has helped sovereign credit weather recent shocks and reinforced market confidence.

• Current valuations leave little room for error, with bond spreads close to multi-year tights. We believe the short end of the Egyptian bond curve is trading at a premium relative to Egypt’s sovereign curve.

• We maintain a Stable credit outlook and favor Egyptian credit only within a diversified portfolio, as high public debt ratios, elevated interest expenditures, and reliance on external financing remain key constraints.

We maintain a Stable credit outlook on Egypt. The Resilience tested sovereign’s credit profile has improved following a series Egyptian credit has proven relatively resilient in the wake of policy measures since 2024, including exchange rate of the US-Iran conflict compared with previous external flexibility, tighter monetary policy, and fiscal discipline, along shocks. Sovereign bond spreads, as measured by the with rebuilding FX buffers after the Ras El-Hekma deal JPMorgan EMBIG Diversified index, widened by around in 2024. These measures have reduced macroeconomic 75bps and peaked at 472bps before tightening below pre- vulnerabilities and strengthened policy credibility, in our conflict levels to around 337bps at the time of writing. view. This compares with a recent peak of around 765bps in April 2025, when global risk sentiment weakened amid That said, Egypt’s credit profile remains constrained uncertainty about the US tariffs. by elevated public debt, a high interest burden, and dependency on external financing. Upside risks to our view include a decline in public debt ratios and in the interest burden, for example, through debt reduction steps funded by potential privatization proceeds. Key downside risks include reform fatigue, including fiscal slippage or abandoning exchange rate flexibility, tighter global financial conditions, and geopolitical and social risks.

Table 1 - Egypt sovereign credit outlook

Source: Moody’s, S&P, UBS, as of 10 July 2026

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Emerging market bonds: For investors outside of the US

Figure 1 - Egyptian bond spreads are close to Policy credibility and IMF anchor multi-year tight levels In our view, maintaining exchange rate flexibility has been EMBIG Div spreads (in bps) a key policy for Egyptian authorities during the ongoing Middle East conflict. The Egyptian pound weakened by around 15% in March, acting as an automatic stabilizer amid capital outflows. Allowing the currency to weaken helped the Central Bank of Egypt maintain FX buffers and reinforced policy credibility. Since the initial sell-off, the EGP has recovered some of its losses and has since remained rangebound.

Egypt’s IMF program has so far been a key policy anchor and an important source of external financing. The country unlocked USD 1.8bn of funding in July from the IMF following the completion of its program review. The IMF highlighted tight monetary policy, continued fiscal discipline, and a decisive divestment agenda as being essential for Source: UBS, JPM, as of 20 August 2026 preserving macroeconomic stability.

Investment view Egypt’s IMF program is set to be concluded in December Despite a less fragile fundamental backdrop, we do not see a 2026. Prime Minister Mostafa Madbouly said that the compelling risk-reward profile for Egyptian credit at current country does not plan to seek a new IMF program once the valuations, particularly in the absence of a durable peace current one ends. In our view…