BNY’s EMEA Macro Strategist Geoff Yu reports that Latin American sovereign debt positioning in global portfolios has climbed to multi-year highs, with combined holdings in Brazil, Mexico, Argentina, Chile, Colombia and Peru now above 2023 peaks. With LatAm bonds no longer under-owned and U.S. yields stabilizing or rising, future returns will depend more on domestic fundamentals and U.S.–regional relations.

Crowded LatAm sovereigns shift focus to fundamentals

"While there are clear merits for re-rating, whether EM can offer stronger risk-adjusted returns remains far-fetched."

"This is particularly true for LatAm fixed income, which is currently one of the best-held asset classes in iFlow."

"Combined sovereign holdings in the region are currently just below 1.2% of total sovereign bond holdings."

"The question ahead for the region is what will drive returns now that the positioning layer of valuations is removed, while U.S. yields look set to stabilize or even rise."

"In fixed income, the asset class is also no longer under-owned relative to history, and fundamentals will need to play a bigger role to sustain or even improve upon current performance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)