COVER STORY: Local Currency Fixed Income Goes Global

Jan 1, 2011

Demand for local currency fixed income is back, tracking appreciating LatAm currencies and flaring rates differentials. Structural shifts support the trend, but can it last?

by Ben Miller

A 2010 surge in LatAm debt issuance denominated in reais and pesos marks more than continuation of a decade-long push by borrowers to match assets and liabilities. More than ever, investors demand securities denominated in domestic currency, not just for yield, but as part of a widespread rotation out of stagnant G3 markets.

Last year saw an increasing flow of global bonds from governments, banks and corporates denominated in their home currencies. This included a debut from Chile and some surprising foreign names in the format, including Anheuser-Busch InBev and Morgan Stanley in both reais and soles. Sub-Libor pricing on a Colombia sovereign global TES issue highlights the draw for issuers, as well as surging appetite from investors for LatAm FX exposure.

"One of the fastest growing themes now is local currency," says Ousmène Mandeng, head of public sector investment advisory at Ashmore, which manages $41.6...

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