A small rephrase as my statement above is not fully true: hostvars are templated but restricted to variables in the hostvars for that host itself, so hostvars that depend on variables in other scopes are not templated. Under the hood templating fails but this is non fatal as we expect it often, so we return the original template. Using the vars directly in the context of the host elsewhere will ' just work'TM as there the rest of the vars exist in that context.
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