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Markets appear to be mispricing LatAm political risks

We think that the reactions in bond markets to Brazil’s and Mexico’s new leaders have gone too far. Investors in Brazil look overly optimistic about President Bolsonaro’s ability to turn the public finances around, while investors in Mexico seem too pessimistic about President López Obrador’s policies. We therefore expect the average credit spreads of the countries’ dollar bonds to converge again in 2019.

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