Anchored US front-end yields and softer real rates improve risk-reward for Latin American duration assets, analysts say.
BNY strategists see Latin American sovereign debt offering better risk-reward than currencies after the Fed’s policy shift anchored US front-end yields. The move has reduced volatility and improved the inflation outlook for the region through weaker dollar imports and lower real rates.
Regional assets underperformed through June and early July, creating rebalancing potential toward month-end. While carry trades stalled amid cross-asset volatility and geopolitical risks, duration exposure in Brazil and Mexico appears more attractive given crowded FX positioning and limited upside.
The decline in US real yields and dollar softness further supports the case for LatAm bonds, as the region faces less exposure to global supply stress. Analysts note asset selection remains challenging but favor sovereign debt over FX in the current environment.