According to BNY’s Geoff Yu, exposure to Latin American (LatAm) bonds is unwinding as higher U.S. yields prompt a domestic repricing of real-rate risks in the region [1]. End-June flows marked the first time in two months that the monthly smoothed flow score for LatAm bonds turned negative, signaling the materialization of concerns about over-crowded positions in these assets [1]. Despite this, BNY does not interpret the shift as broad capital outflows from Latin America. Instead, the data indicate a rotation of flows toward regional equities, with equity flows nearing net purchase territory after a particularly weak May [1].
The report highlights that the structurally lower FX hedge ratios associated with equity inflows mean this rotation does not undermine BNY’s constructive tactical view on Latin American carry trades. Regional currencies remain BNY’s preferred expression for carry, suggesting continued investor interest in currency strategies despite bond market vulnerabilities [1].
Key policy and political drivers for regional assets include developments in Peru, Mexico, and the United States-Mexico-Canada Agreement (USMCA) [1]. Looking ahead, Peru’s central bank is expected to leave rates unchanged this week, even as inflation remains above target. BNY anticipates a hawkish bias from the central bank until the U.S. Federal Reserve signals a clearer shift in policy direction [1].
CONCLUSION
BNY observes a rotation from Latin American bonds to equities and carry trades, driven by higher U.S. yields and domestic repricing of risks. Despite bond outflows, the region continues to attract capital through equities and currency strategies, with policy developments in Peru, Mexico, and USMCA remaining key to market direction.