We initiate coverage of Brazil sovereigns with a Neutral recommendation on USD-denominated bonds. We view Neutral as a positioned call rather than a split of the difference. It is the point where a strong external balance sheet caps the downside, while a deteriorating fiscal trajectory and tight-to-fair valuations cap the upside. We do not think the credit earns an Overweight. The belly already trades close to its own recent averages and only modestly wide of higher-rated regional peers, while the fiscal turn needed to drive broader compression is absent into an election cycle with limited visible reform delivery. We also do not favor an Underweight. Brazil has no market-access or liquidity problem, funds predominantly in local currency, and pays enough carry that a defensive stance is costly to hold against a downside the institutional framework makes gradual rather than abrupt.

The curve separates near-term repayment risk from fiscal-duration risk, and that separation drives our positioning more than final maturity. The 2027s and 2029s have largely priced Brazil’s external strength and now trade too tight to express more than a liquidity anchor, leaving little spread cushion and limited upside. The long end pays the most spread, but it also carries the part of the curve most exposed to the still-rising debt path and to an election cycle that has yet to offer a credible catalyst to bend it lower. Neither end is where we want the core of the position.

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We initiate coverage of Argentina sovereigns with a Neutral recommendation on USD denominated bonds and identify the ARGENT 2035s and 2041s as our preferred curve expressions. Argentina remains a normalization trade, not yet a normalized credit. Fiscal consolidation, disinflation, rating momentum and improved market confidence support the recovery, while substantial carry argues against a defensive underweight stance. Much of the post stabilization convergence is already priced, however, and low net FX reserves, an incomplete current account adjustment and rising 2027 political risk argue against a broad Overweight recommendation at current levels.

Within the curve, we favor the 2035s and 2041s. The 2035s offer the cleanest OAS entry point, while the 2041s provide greater spread compression upside if Argentina continues moving toward market access pricing. We do not emphasize the 2038s because they trade inside the 2035s on OAS and below the 2041s on yield, while offering less upside to further spread compression than the 2041s. They are less differentiated within the preferred belly segment. For defensive exposure, we would favor ARGENT 2030 over ARGENT 2029, as the 2030s still offer modestly better yield and OAS while keeping policy horizon risk relatively contained. We would size the 2046s as a smaller, higher beta normalization position rather than the core expression. We would use political volatility as a source of entry points, not only as a source of risk, to add to the 2035s and 2041s.

The sovereign is no longer trading only on crisis avoidance. Investors are now pricing rating migration, lower country risk and eventual market access. Macro data, rating actions and the curve all point to that shift.

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The removal of Nicolás Maduro and the designation of an interim authority marked a decisive rupture with the prolonged political paralysis that has defined Venezuela since the 2017 default. From a market perspective, that break alone was sufficient to trigger a sharp rally across defaulted Venezuelan sovereign bonds and PDVSA debt, as investors reassessed the probability of renewed engagement with the U.S. and, eventually, a path toward restructuring. We view this initial repricing as rational. Eliminating the tail risk of indefinite stalemate carries intrinsic value in a credit that had effectively been frozen by sanctions, legal uncertainty, and the absence of a credible interlocutor. However, we do not think this move should be read as confirmation of near-term normalization or a clean transition toward debt sustainability. The rally reflects a reopening of optionality rather than resolution.

The political configuration that is now emerging matters materially for credit. The interim framework appears explicitly designed to prioritize stability, control, and bilateral coordination with the U.S., rather than an immediate, opposition-led electoral transition. Notably, there is no defined election timeline, and the durability and international legal standing of the interim arrangement remain unresolved, with U.S. policy posture still framed around leverage and conditional engagement rather than full normalization. Senior U.S. officials have signaled a willingness to work pragmatically with elements of the existing Chavista structure, while simultaneously downplaying near-term elections and keeping deeper political recognition and normalization contingent on cooperation and outcomes. From a fixed income perspective, this setup increases the probability of incremental, transactional progress, but it also embeds legitimacy risk and reversibility into the process. A prolonged interim period may allow for selective policy actions such as targeted sanctions relief or expanded operating licenses, but it also leaves bondholders exposed to delays, policy fatigue, or partial rollbacks if political cooperation deteriorates. That distinction is critical because it directly shapes both the timing and the ultimate recovery path for creditors.

Recent U.S. actions suggest that engagement is being structured less as a broad normalization process and more as a tightly controlled oil monetization mechanism. The U.S. has indicated that Venezuelan crude and products are being marketed through authorized channels, with proceeds settling into U.S.-controlled accounts and disbursements occurring at U.S. discretion. The framework is described as beginning immediately with an initial tranche of oil sales and continuing on an indefinite basis. In our view, this materially clarifies the nature of early engagement: barrels may flow, but cash control remains externalized.

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