EM FX hedging strategies: local vs. major currency debt?

asked by u/arslan_mehmet · 14d · 1 answers

Been diving deeper into EM sovereign and corporate debt, specifically in countries with more volatile local currencies. I'm seeing a mix of local currency denominated debt and debt issued in USD or EUR. When looking at hedging strategies, especially for a portfolio with a blend of both, what's the general consensus on how to prioritize? Is the focus primarily on hedging the local currency exposure, or is there a strong argument for hedging the FX risk on the major currency debt if the issuer's revenue stream is mostly local? What framework do others use to differentiate these scenarios?

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  • u/aaron50· 1 pts· 14d

    The 'consensus' usually leans towards hedging the most impactful exposure, which often means the major currency debt due to its larger notional value and often more liquid hedging instruments. Local currency debt hedging can be tricky and costly, sometimes outweighing the benefit.

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