In the 1990's there was one crisis after the other. First, it was the Mexican peso crisis, the "Tequilla" crisis, and next came the Asian crisis that started in Thailand. The key word in these times was "contagion" because all emerging markets were hit, sold down. It was fierce.
To quote the FT article by Erika Mouynes from April 28, 2026, the problem with emerging markets in crisis times can be called "The Original Sin". Put simply, this results from a foreign country borrowing too much in US dollars. When uncertainty prevails, the US dollar goes up because investors flock to the safe asset, which means the cost of their debt payments go up (they must buy USD to make debt payments).
In the 1994 in Mexico (Tequilla crisis) and the 1998 in Thailand (Asia crisis), both countries had too much dollar borrowing. For years dollar interest rates were low, so countries like Mexico and Thailand borrowed heavily in US dollars and invested in local currency projects. The projects did not generate cash flow fast enough to pay rising debt costs as the US dollar went up. It was like someone took a low interest credit card with no interest for one year. At the end of the first year, the revolving rate went up to over 10%, and at the same time their salary or hours got cut. They had run up debt and didn't have the wages to meet payments.
When it comes to oil price shocks, like the present Iran one, Latin America has traditionally been hit the worst. The oil shocks of 1973, 1979, 1990, and 2008 caused Latin currencies to go down and spreads of bonds over US Treasuries to blow-out on the upside. It was not petty.
Surprisingly, this time in Brazil this has not happened; the real is up versus the US dollar and the ten-year bond has only gone up. Brazil has really redeemed itself from the original sin.
It took a long time, but governments in Latin America, especially Brazil, have learned that substituting local currency bonds, both sovereign and private, for foreign bonds alleviates the burden of foreign currency payments. Brazil now issues 96% of its sovereign debt in local currency, reals.
Brazil is a net commodity exporter borrowing in their own currency. In times of crisis, like now, they earn more dollars from the crisis (commodities are prices in USD) than the dollars they owe.
Brazil has absolved itself of the "Original Sin". Virtually no more foreign debt.
What does this mean for investors? Well, if we accept that Brazil is a market whose debt fundamentals have improved to the point that they are better than the US (government debt to GDP is over 100% in the US and 80% in Brazil), we can conclude Brazil will attract investor attention. More attention will lead to buying of bonds and other assets.
To capitalize on rising interest and attention, the Etherfuse Tesouro is attractive at a yield of 13.24% in real, a currency that has strengthened almost 5% versus the US dollar since the Iran war broke out.
Investors will start noticing the fundamentals, interest rate, and currency resilience soon.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
