Bond Investors Pull Back as Central America Rallies Go ‘Too Far’

Macro
โดย Bloomberg·Read original
Summary · why it matters

Investors are pulling back from a niche trade in Central American and Caribbean government bonds that delivered some of the best returns in emerging markets in recent years. A double-digit rally turned the once-overlooked corner of the developing world into a magnet for foreign bond buyers, but with the region trading at a premium to the rest of emerging markets, funds including William Blair Investment Management and T. Rowe Price are moving away from broader bets and instead zeroing in on a handful of countries they still consider undervalued. Christopher Mejia, an emerging-market sovereign analyst at T. Rowe Price, said he has taken profits in several long-standing overweight positions including in The Bahamas, Barbados, Costa Rica as well as Trinidad and Tobago, while Morgan Stanley strategists declared the trade now fully priced and moved to a dislike stance on El Salvador and Costa Rica. Most sovereign bonds from Central America and the Caribbean trade above par and offer an average yield of 5.9%, far below the 7.7% average for junk-rated sovereign bonds in the developing world, according to data compiled by Bloomberg. Debt from the region has returned more than 40% since 2023, beating a Bloomberg index of peers, as governments won credit-rating upgrades for keeping debt levels in check and completed debt-for-nature swaps that refinanced billions of dollars in obligations at cheaper levels.

Impact on stocks 3

Financials▼ · 3 stocks
T. Rowe Price Group Inc
TROW
▼ NegativeCapitalrelevance

T. Rowe Price analyst said he has taken profits in several long-standing overweight positions in the region, indicating reduced exposure

Morgan Stanley
MS
▼ NegativeCapitalrelevance

Morgan Stanley strategists declared the trade fully priced and moved to a dislike stance on El Salvador and Costa Rica, reflecting a bearish view on those bonds

Off-coverage companies 1

William Blair Investment ManagementPrivate▼ Negative
Capitalrelevance

William Blair Investment Management is moving away from broader bets in the region, suggesting reduced allocation

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