"I was looking at the latest Aberdeen offering: Latin American Income IT. It made me start thinking about Brazilian Government Bonds as a place to park cash. Are they a good buy for a Sterling or Euro based investor? The yield looks appetizing even adjusted for current local inflation.

"Particularly, I should be interested to know what your charts and other sources of intelligence tell you about the Real/Euro and Real/Sterling exchange rates and what they tell you about the outlook for inflation in Brazil relative to Europe and the UK?

"Finally, if you were persuaded of the investment case, what maturities would you buy?

"Please continue your excellent work. After a year of being a subscriber I am still always interested and informed by your daily comments."

Eoin Treacy's view Thank you for this interesting question and generous feedback. While the fund has yet to be issued, here is a link to a presentation from the prospective managers. For a high yield region such as Latin America, the anticipated British Pound 4.25% yield appears to be achievable.

Brazilian bonds tend to come in US Dollar, low yield issues or Real considerably higher yielding issues. Brazil's fiscal position has improved considerably over the last decade, reflected in the appreciation of the Real against a host of currencies and valid questions can be asked about whether the country's BBB rating is still appropriate for a creditor nation which has become an exporting powerhouse due to higher demand for its commodities.

This article by Tal Barak Harif and Ye Xie for Bloomberg focuses on the Brazilian bond market and may also be of interest. Historically, secondary market liquidity has been an issue for Brazilian government bonds but there have been a range of measures introduced to improve the situation.

7.875% 2015, 8% 2018 and 7.125% 2037 US Dollar bonds all remain in consistent uptrends and would need to break their progression of higher reaction lows to question scope for continued yield compression.

The US$ 10yr generic yield's downtrend has picked up pace of late and is now testing the 4% area, taking the spread over US Treasuries to 130 basis points. The spread has been ranging between 1% and 2% for much of the last 18-months in what may be base formation development. A sustained move back above 200 basis points would be required to confirm this hypothesis.

Brazilian Real 3yr Andima bonds have been trading between 12% and 13% since October last year. The shorter end of the curve appears to be more liquid and while Bloomberg also offer a 10yr generic index of such bonds, the pricing appears to be quite spotty. The 3yr yield is now testing the lower side of the range and an upward dynamic would be required to question potential for further compression.

All of the above charts indicate that demand for Brazilian debt remains robust and investors continue to exert upward pressure on prices. Provided uptrends remains consistent we can continue to give the benefit of the doubt to the upside.

Potential obstacles may lie in the fact that as a rapidly progressing market with some big ticket infrastructure development projects in the works such as the Tupi oil field, the World Cup and Olympics inflation may become a more pressing issue in the coming years which may dampen investor interest in these bonds.

Both the Pound and Euro have both fallen considerably against the Real and are close to historically low levels. Both currencies are currently rallying and the Brazilian authorities are less inclined towards allowing the Real to strengthen. Interest rate differentials remains wide so base formation development for the Pound and Euro could be lengthy but it is looking increasingly less likely that they will not fall very much further against the Real over the medium term.

From an investment perspective, the 12% yield currently available on 3yr Real maturities could insulate the position from currency volatility.