BNY\u2019s EMEA Macro Strategist Geoff Yu reports that Latin American sovereign debt positioning in global portfolios has reached multi-year highs. Combined holdings in Brazil, Mexico, Argentina, Chile, Colombia and Peru are now above 2023 peaks.<\/p>\n
Combined sovereign holdings in the region are just below 1.2% of total sovereign bond holdings. Latin American bonds are no longer under-owned compared with historical levels.<\/p>\n
With U.S. yields expected to stabilise or rise, the role of positioning in valuations may weaken. Future returns may rely more on domestic fundamentals and U.S.\u2013regional relations.<\/p>\n
The article was created with the help of an Artificial Intelligence tool and reviewed by an editor. It was published by the FXStreet Insights Team, which curates market observations and adds analysis from internal and external contributors.<\/p>\n
We see that Latin American sovereign debt is now a very crowded trade, with our holdings in the region climbing above the peaks we saw back in 2023. This positioning means the easy gains are likely behind us, as the asset class is no longer under-owned. With combined holdings just under 1.2% of total sovereign bonds, the risk of a reversal is growing.<\/p>\n
The situation is becoming more precarious as U.S. yields are firming up, threatening the viability of the carry trade. Last week’s U.S. January inflation data came in hotter than expected at 3.1%, making it less likely the Federal Reserve will consider rate cuts before the summer. This makes U.S. debt more attractive and puts pressure on emerging market assets.<\/p>\n
For the coming weeks, we should consider buying put options on broad Latin American bond ETFs to hedge our long exposure. This strategy provides a cost-effective way to protect against a potential pullback driven by higher U.S. rates. It also allows for speculation on increased volatility, which seems probable now that the positioning tailwind has faded.<\/p>\n
The currency component is now the biggest risk, especially after the sharp sell-off we witnessed in the Mexican Peso during the fourth quarter of 2025. Consequently, using currency options to hedge exposure to the Brazilian Real and Colombian Peso is advisable. A stronger dollar could easily wipe out any remaining yield advantage from the bonds themselves.<\/p>\n
It is now critical to differentiate between countries, as domestic fundamentals will drive performance. For instance, recent data shows Peru’s copper exports surging while Chile’s are lagging, suggesting a potential pair trade. We could use credit default swaps (CDS) to go long Peru’s sovereign risk while simultaneously shorting Chile’s to capitalize on this divergence.<\/p>\n","protected":false},"excerpt":{"rendered":"
Latin American sovereign debt holdings hit multi-year highs; valuations less positioning-driven as U.S. yields rise.<\/p>\n","protected":false},"author":62,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42232","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42232","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=42232"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42232\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=42232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=42232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=42232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}