Bank of America's back-to-school emerging markets report tells clients to buy back EM, and the first of its four supporting themes is a policy that has not been tested yet.
The usual way to handicap a policy experiment is to work out whether it succeeds. David Hauner's argument on the Treasury's buyback program is that emerging markets win either way — success suppresses volatility in the yield curve, and failure forces a further response that weakens the dollar.
"Bessent Treasury buybacks are EM positive, whether they're successful or not in our view."
Hauner runs global emerging markets fixed income strategy at BofA Securities, and this is the note behind the call, read out by the person who wrote it.
The full episode is covered here so you can skip it.
Here are the 7 calls that matter.
👤 Speaker: David Hauner, Head of Global Emerging Markets Fixed Income Strategy at BofA Securities
📰 Published: 14 September 2026 on YouTube (Bank of America) · recorded 9 September 2026
🔴 YouTube | 🔗 Episode page | ⏱️ 6 min
Key Takeaways
The house call is long emerging market carry and cautious on everything else in the asset class
High rates and a range-bound dollar support the carry; persistent inflation and possible equity risk-off are why rates and sovereign spreads are not owned
The Treasury's buyback program is a positive for emerging markets under both outcomes
Three Fed hikes would not change the emerging markets case, because they only restore the 2025 level
At a real fed funds rate of 1.25 the policy stance would still not be restrictive on his reading
The bigger risk into the US midterms is oil, not the Fed
Crude stocks are already very low, so an Iran-related disruption would have a major price impact
Emerging market core inflation is the highest it has been since COVID, and still accelerating
Energy prices are running about 50% higher year over year, with food now picking up too
Positioning in emerging market currencies is long but not yet long enough to be a contrarian sell
The spillover he is watching is hyperscaler debt: US investment grade bonds issued by them are already widening
1. Buy Back EM, With Caveats
The episode is the summary of a BofA report called Emerging Convictions: Buy Back EM, and Hauner gave the conclusion before the reasoning.
The constructive half of the call rests on two conditions rather than on growth: the firm remains constructive on emerging market carry, which it says benefits from high rates and a range-bound dollar
The other half is a warning about the rest of the asset class: "But, we are more cautious on emerging market rates and sovereign credit spreads due to persistent inflation and possible equity risk-off."
Four themes support the call, and he took them in order: the Treasury's buyback program, the Fed, the US midterms, and emerging market monetary policy
2. The Bessent Put
The first theme is the one that gives the segment its most quotable line, because it claims the trade works under both outcomes.
"Bessent Treasury buybacks are EM positive, whether they're successful or not in our view," he said
If the scheme works, the mechanism is volatility: a calmer yield curve makes emerging market carry more attractive
If it does not work, the mechanism is the dollar: "In contrast, if the scheme doesn't work, a further increase in the term premium would likely make markets expect new measures either to intervene in the Treasury market or to cut the deficit."
That expectation, he said, would also likely be negative for the dollar against emerging markets
3. Three Hikes, Not a Problem
The second theme is the Fed, and here he separates the carry trade from everything else in emerging markets.
The split runs straight down the middle of the asset class: "A more hawkish Fed is a headwind for EM rates and spreads, but should be acceptable for EM carry."
BofA is above the market on hikes and says it does not matter much: "After the Jackson Hole speech, markets priced now about two hikes by the first quarter. We forecast three, but don't think that one more hike would really be a game-changer for emerging markets."
The reason it does not matter is the growth backdrop: "Global growth remains robust, so we think emerging markets should be able to absorb a few hikes."
The level argument is the stronger one, and it is about where three hikes would leave policy rather than how many there are: "Also, even three hikes would just bring the level back to where we were in 2025, and the real Fed funds rate of 1.25 would really not be restrictive."
The global inflation picture is what caps the dollar in his framework: "High global inflation is likely to persist in many countries around the world in the fourth quarter, leading to more hikes, and that caps the dollar and lets emerging market carry work, even if the Fed hikes."
The same backdrop is the reason for the caution on emerging market rates and credit spreads, which he says are more exposed to the rising level of yields globally
4. Midterms, Oil and the Dollar
The third theme is the US election calendar, which he says reaches emerging markets through three channels: the dollar, oil prices and equity markets.
On the Fed's own calendar: "If the Fed doesn't hike in September, we think it will probably only do so in December due to the elections"
The risk he names explicitly is an energy shock rather than a policy one: "Meanwhile, we're worried that there's potentially a risk of an oil spike due to Iran in the run-up to the midterms. Crude stocks are already very low, so any further disruption would have a major price impact."
US equity weakness would cut both ways for the asset class: "It could be constructive for emerging market currencies through a weaker dollar, but it would definitely be negative for emerging market credit spreads."
On the rest of the autumn calendar, Brazil's elections are the main political event in emerging markets on his list
He is not expecting much from the other headline event: "And also the Trump-Xi summit in September is important, although for the time being, we don't expect it to bring major news." He does expect it to be constructive for further strength in the Chinese currency
5. EM Inflation Still Rising
The fourth theme is monetary policy in emerging markets themselves, where his point is that central banks have not been given permission to stop.
High global inflation is what keeps those central banks hawkish
The energy comparison is the number behind it: "Energy prices are still running about 50% higher year-over-year." Food prices have also picked up lately
The direction of travel is the problem rather than the level: "EM inflation momentum remains on the way up, especially for core inflation, which is already the highest since COVID."
6. Where He Wants the Carry
With the four themes laid out, the last third of the segment is the positioning, and it is unusually specific for six minutes of audio.
The summary of the book in one sentence: "So, against this backdrop, we do like emerging market carry trades, but we really don't like emerging market rates."
Positioning is crowded but not yet a sell signal, which is a distinction he makes deliberately: "Our EM FX sentiment indicator is really quite optimistic. So, that suggests positioning is really long, but it's not quite as long as to trigger a contrarian sell signal."
He also says local market valuations remain attractive
The trades are in the highest-yielding currencies: "We like carry trades, particularly in the high yielders like Brazil, Colombia, Peru, Turkey."
He adds local frontier markets, which he says are becoming more popular, naming Egypt, Kazakhstan and Nigeria as examples
In Asia the position is the offshore renminbi, on a valuation and a flow argument: "In Asia, we continue to like CNH because we think that the currency is very cheap and exporters will be increasingly converting their very large surpluses into domestic currency."
7. Hedge the Credit, Wait
The hard currency sovereign side is where the caution is, and he says so in the language of a book that is deliberately underinvested.
The stance is to hold cash and pay for protection: "We prefer to add hedges and wait for better opportunities to deploy cash later."
The firm's quantitative work agrees: "Our models, broadly speaking, send sell signals for risk assets and particularly for sovereign credit spreads against US high yield."
The midterms and a start to Fed hikes are both, in his account, reasons to expect more volatility in that asset class
The contagion channel he flags last is the one furthest from emerging markets: "On top of that, we're already seeing hyperscaler US investment grade bonds widening and we think there's a risk that this could start to spill over into emerging market credit as well."
Bonus Insights
The show describes itself as the place where strategists and economists from BofA's global research group give a shorter take on markets, and this episode is a single unbroken monologue with no host and no questions
The note behind it is the firm's back-to-school report, published under the title Emerging Convictions: Buy Back EM
Hauner recorded the episode on 9 September, five days before it was published and ahead of the Federal Reserve meeting the calls are pitched against
Hauner's bottom line is that emerging market carry survives a hawkish Fed and a US election season because global inflation caps the dollar, while emerging market rates and hard currency sovereign spreads are the part of the asset class he would rather hedge than hold.
Products, Companies & Tools Mentioned
BofA Global Research (The source of the call, the four themes, the EM FX sentiment indicator and the models that are sending sell signals on sovereign credit)
Books & Resources Mentioned
Emerging Convictions: Buy Back EM – BofA Global Research (The back-to-school emerging markets report this episode summarizes, and the source of all four themes)
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