Latam Charts: What the Curves Say

• Latam’s sovereign yield curves have risen and steepened in line with global developments so far in 2021. They have also remained notably stable as capital inflows have continued despite the recent rise of political uncertainty in some countries.

• Argentina’s explosive third-wave surge in COVID-19 is not being mirrored elsewhere in the region.

YIELD CURVES MOVING ON GLOBAL DEVELOPMENTS

• Since the beginning of 2021, sovereign yield curves across Latam have progressively risen and in most cases steepened in response to global developments in the pandemic, inflation prints, and shifts in developed-market monetary policy expectations (see the Yield Curves section, pp. 6–7). Brazil’s initiation of the region’s first monetary-policy rate hikes has pushed its sovereign curve up the most markedly amongst its Latam peers, but all of the region’s curves have come to reflect market anticipation of higher policy rates by late-2021 or the first half of 2022. Hikes by the BCB’s Copom have helped to propel the BRL to the top of the emerging-market FX ranks (charts 1 and 2), a major turnaround anticipated by our forecasts.

• It’s notable that the shape of sovereign yield curves has changed little since the onset of local political uncertainty during the past few weeks in Chile, Colombia, and Peru. If anything, the region’s curves have flattened somewhat (table 1), in line with developed-market yields, as capital flows have continued to remain solid into Latam.

ARGENTINA’S THIRD WAVE EXPLODES

• Argentina’s recent explosion in new COVID-19 cases has focused a fresh spotlight on the pandemic’s evolution in Latam, but developments elsewhere in the region are mixed. Argentina hit an initial third surge in new COVID-19 cases in March, followed by a small breather in April, only to see new case numbers take off again in May (Key COVID-19 charts 7 and 8). As a result, the authorities announced on Thursday, May 20, that their first strict lockdown on most activities in 2021 would go into effect on Monday, May 31.

• Colombia’s new COVID-19 infection numbers have also remained stubbornly high (Key COVID-19 charts 7 and 9). A combination of some loosening in restrictions and a possible breakdown in physical distancing during political protests has combined to sustain the country’s third wave amidst a relatively slow roll-out of vaccinations compared with the rest of Latam (chart 3).

• Still, in terms of cumulative per capita COVID-19-related deaths, official statistics imply that, outside of Brazil and Peru, the rest of the Latam-6 hasn’t fared much worse than the US (table 2). That said, official statistics clearly undercount COVID-19 deaths everywhere in the world.

• Chile continues to remain miles ahead of the rest of Latam—and much of the world—with its exemplary roll-out of vaccinations (chart 3, again). But as vaccination rates start to ramp up gradually across the rest of Latam, new infection numbers (Key COVID-19 chart 7, again) and positivity rates (chart 4) continue to trend downward in Chile, Mexico, and Peru.

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