EDITORIAL: Testing times

EDITORIAL: Testing times

Economy & Policy Corporate & Sovereign Strategy

Amid the chaos in bond markets earlier this year, a funny thing happened to local currency sovereign bonds: cash flowed in. Between May and September, while the headlines proclaimed the demise of the emerging markets, and as riots exploded on the streets of São Paulo, international investors put $17 billion into Brazilian government bonds denominated in reais. The effect was less stark in Mexico, but no less counterintuitive. As analysts downgraded their growth forecasts for the country, foreign investors bought $2 billion worth of peso denominated sovereign bonds. In Brazil’s case, much of the flow had to do with the removal of a tax on fixed income investments. But data underscore th

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