This first chart gives the general overview of the bonds in question, namely those of Argentina, Brazil, Colombia, Ecuador, Mexico, Peru and Venezuela (before you ask, Chile's bonds are a rather slight market on the world stage and don't make the cut). Also included in this messy chart are the EMBI+ average and the EMBI+ LatAm average. Also, full apologies to Colombia for the mis-spelling in the chart; the service I used either needs to run spellcheck or get an education.
What we clearly see is a group of four "serious" bonds, namely Brazil, Colombia, Peru and Mexico, then the other three ugly sisters with much higher risk ratings, namely Argentina, Venezuela and Ecuador.
So zeroing in on the 'exotic' three....
.... we see that although Ecuador has lost some ground recently (and remember Otto called it so), it has had by far the best year of the three. Venezuela and Argentina country risk has basically doubled in the same time. The main risk for all three countries is, according to JP Morgan, the inability to pay if the countries' main commodities suffer a prolonged downturn. So if anyone reading this thinks oil is going to drop under $80/bbl and soya under $6/bushel they can join in with the fears of the risk raters, but otherwise just read this for what it is, namely three countries that reject the Northern way of doing business.
As for the 'serious' regional bonds......
.......it's notable how all four countries move in lock-step. This suggests that it doesn't really matter if you have high interest rates (Brazil), a nasty bout of inflation going on (all of them really, but Colombia is worst of the four), oil production sliding fast and drug-gang deaths soaring (Mexico), Presidential approval ratings (the 50 point difference between Uribe at 80 and Garcia at 30) investment grades recently awarded (Peru and Brazil) or if MSCI is thinking about downgrading you from "emerging market" to "frontier market" (Colombia). The only thing that matters is "we buy LatAm or we sell LatAm, dudes?", because it's pretty clear that the braces-wearing Gekko-world doesn't care much about the macroeconomic changes seen in the four countries.
This news will come as a downer for Peru, a country that suddenly thinks it's special. It'll come as a downer to Brazil, a country that has thought itself special for a full century. But Mexico won't care and Colombia is Colombia...it's just different.
Finally, here's the Latam EMBI+ rating compared to the global average. And what this says is "dudes, it's not just this region that's the same...it's the whole world. Just one big bonds market. Either none of you default or you all default."
So the question is "why hold Peru bonds when you can hold Brazil bonds and get more whack per buck?" And why listen to the EM bonds expert explain why s/he's trimming their Mexico exposure and adding to Colombia? It's all angels and pinheads, anyway. Right now the only bonds that would tempt me value-wise are those of Ecuador. With sovereign debt to GDP ratio dropping and oil revenues going through the roof, the chances of default while oil stays over $100 (or maybe even $80) are precisely zero. Why own Peru at 200 basis points spread when Ecuador gives me another 4.5% interest per annum? But right now, the Ecuador election-to-come puts me off owning its debt. Once the air has cleared in October, Ecuador paper should be a worthy addition to your LatAm portfolio.