BNY strategist highlights strong real rates and commodity exports supporting LatAm assets, though rising U.S. yields and Fed opacity cap carry-trade momentum.
Latin American currencies and fixed income assets are poised to benefit from improved terms of trade for energy and soft commodity exporters, backed by robust real-rate anchors. BNY’s analysis suggests these advantages could drive gains in currencies or duration, particularly as governments seek fiscal flexibility through longer-dated debt.
However, the region’s carry-trade appeal is constrained by rising U.S. yields and a Federal Reserve that may eschew forward guidance under Kevin Warsh’s influence. Hedge ratios remain elevated amid uncertainty over Fed policy, despite aggressive hawkishness from central banks like Colombia’s BanRep, which is expected to hike rates by 50 basis points to 12.50%.
While tactical positioning in LatAm assets remains favorable, fixed income is seen offering better risk-reward than currencies. The lack of clarity on Fed intentions keeps market participants cautious, limiting the momentum of carry trades despite flat positioning.