Latin American Debt Rises As A Refuge 6000 Miles Away From War By Bloomberg

Latin America Debt Emerges Like A Refuge 6000 Miles From War (Bloomberg) — Latin America is emerging as an oasis of stability amid the global bond price fueled by the war in Ukraine, benefiting from a distance of 6600 miles from the conflict. The region’s dollar-denominated government and corporate bonds have gained 0.4% since Russia invaded Ukraine in late February, compared with a 9.8% loss in Eastern European, Middle Eastern and African banknotes and a drop of nearly 3 percent. % in Asian debt, according to Bloomberg indices. It was also a brutal period for the US Treasury, which was experiencing its worst quarter of modern times. Investors have flocked to Latin America in the past month, away from securities directly affected by the war. Unlike most European developing countries, the region’s major economies do not have strong trade ties with Russia and still benefit from massive commodity price increases as major commodity producers. The recent outperformance marked a reversal from the first two months of the year, when Latin American bonds were hit by asset sell-offs in developing countries triggered by fears of a Federal Reserve tightening. While the region’s bonds have since recovered, much of the global debt market continued to suffer as traders brace for a more aggressive series of rate hikes in the US. The sharp rise in commodity prices, fueled by worries about supply shocks since the start of the war, has made investors particularly interested in bonds from the region’s commodities giants. The debt market is the only way to invest in state-owned companies, including Petroleos Mexicanos and Corporacion Nacional del Cobre de Chile, which do not have publicly traded shares. “Quasi-sovereign oil companies from Colombia to Brazil to Mexico are investment choices that we love right now,” said Kathryn Rooney Vera, head of global macro research at Bulltick LLC, which recommends a buy-and-hold approach to energy credit since “There’s more room for benefits.” While higher commodity prices benefit commodity producers, it also contributes to the region’s already high inflation. For that reason, investors also prefer inflation-linked bonds, seeking protection against rising consumer prices. “We maintain our overweight in real interest rates in Mexico and Brazil,” analysts at Citigroup (NYSE:) led by Andrea Kiguel wrote in a March 29 report. The bank is long on Mexico’s inflation-linked bonds known as Udibonos, maturing in November 2023 and Brazil’s NTN-B bonds maturing in August 2024. Goldman Sachs (NYSE:) also recommends betting on Udibonos, with the preferred is given to those with an expiration date in 2031. Brazil and Mexico’s Inflation According to a Bloomberg survey, interest rates in 2022 are expected to end above the upper bound of their central bank target ranges. By comparison, inflation expectations in other key emerging markets such as South Africa and Indonesia are well under control.

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