What Moves LatAm Bonds

Latin American bonds move with US rates, local policy, inflation, and sovereign credit. We start with the data, then follow the forces behind it.

Dollar yields since 2022

A government's dollar borrowing yield starts with the US Treasury yield for the same maturity, plus the extra yield investors require to lend to that country. When US rates move, yields across the region tend to follow. If one country's yield takes a different path, that's usually a good reason to look at what's happening at home.

Three things stand out. The region has converged: investors draw a much narrower line between the highest- and lowest-yielding of these governments than they did in 2023, which leaves less room to tell a strong credit from a weak one. Mexico has gone the other way, from below Brazil on the chart to above it, even though the IMF puts Brazil's overall deficit well above Mexico's (see the fiscal table below), so the market is pricing more than this year's budget. And the latest rise came across all five at once, which points to US rates and global risk appetite rather than to any one country.

Central banks and inflation-linked units

Five central banks set the local-currency curves in the large markets. Each runs an inflation-targeting regime with its own policy rate, and each market has an inflation-linked unit its government uses to issue real-rate bonds.

Public debt and how governments borrow

How a government borrows matters as much as how much. Debt in its own currency can be repaid in money it controls; debt in dollars cannot. Debt under foreign law is restructured in foreign courts.

Companies with sovereign ties

Several of the region's largest issuers are state oil and mining companies. Pemex is wholly owned by the Mexican state and Codelco by the Chilean state; Ecopetrol is majority-owned by Colombia's government, and Petrobras is controlled by Brazil's federal government. Their dollar bonds trade on the market's view of how far the state stands behind them, so they tend to reprice when the sovereign does.

Dollarized economies

Panama has used the US dollar as legal tender since 1904, Ecuador adopted it in 2000 and El Salvador in 2001. None of the three has a currency of its own to devalue, or a central bank that can lend to the government in its own money. Debt service rests on tax revenue and on new borrowing, so the bond market prices the budget directly.

Restructurings and sanctions

Argentina restructured its foreign-law and local-law bonds in 2020. The new Globales, under New York law, and Bonares, under Argentine law, pay on 9 January and 9 July each year, and those two dates set the country's dollar calendar. Ecuador restructured its global bonds the same year. Venezuela and its state oil company, PDVSA, have been in default since 2017, and US sanctions have shaped who may buy and trade their bonds since 2017.

Financing briefs

The financing briefs apply this to one government at a time: what it owes over the next one to two years, in which currency and under which law, and the sources it has named to pay. The first covers Argentina's 2027 debt bill.

You can see where these forces leave each government's borrowing costs today in the dollar curves and spreads by country.