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1 minutes to read by  BlueBay Fixed Income team, G.Kalani, B.David Jul 16, 2025

We explain why local markets are uniquely poised to benefit from broad dollar weakness and how clients can reap the benefits of this performance via a blended approach across EM Debt.

Key Points:

  • Since the Global Financial Crises (GFC), there has been one key macro trade amongst investors – buying long US dollar assets unhedged.

  • Hedging ratios are low, and while many jurisdictions don’t report these and data is scarce, we estimate that foreign investors hold approximately USD14 trillion unhedged in US equities and fixed income.

  • This has led to a worrying US net international investment position. Its negative external asset position is already among the largest globally. Further, the previously negative correlation between the dollar and risks assets (which contributed to low hedge ratios and dollar overvaluation reaching near 4-decade highs) has turned positive.

  • The large volume of foreign ownerships means that even small shifts in allocation or hedging ratios will impact flows and FX significantly. This creates a backdrop whereby the dollar is likely to decline over the coming years.

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