“As long as the market’s projections on the exchange rate are different from those of the Government, dollar linked placements are a bet that makes sense. On the one hand, because When the Government places these titles, it is giving the message that it is not going to devalue and if it does not devalue it, it will be cheap. On the other hand, it also serves the investor because he thinks the dollar is going to rise, “Joaquín Waldman explained to this media., Head of Research at the consulting firm Ecolatina.
“I think these titles came to stay for a while. But at the same time, they are an instrument that the Government would not seem to like,” he said.
Market expectations are based on the fact that high levels of inflation have been causing a certain delay in the exchange rate and that reserves are being pressured by higher demand from importers and a reduction in export earnings due to seasonal issues.
“In the last 10 years, the electoral processes in Argentina have generated stress situations from the exchange perspective. In general, the elections were preceded by several months of delay in the exchange rate and generated expectations of a change in the rate of subsequent depreciation. Within this framework, the market responded with hedging processes through portfolio dollarization, advance payments on imports and postponement of export liquidation, “he explained. Rodrigo Benitez, chief economist at Quinquela Fondos.
Juan Ignacio Paolicchi, an economist at Empiria, added that there is a demand floor for linked dollars since the market has the possibility of buying in the primary bid at 1% per year (above the rise in the exchange rate), while in the secondary market performance is negative.
In parallel, 32.5% of the last placement corresponded to two letters tied to inflation (Leisure), with maturities in April and July 2022. In these cases a rise in real rates validated by the Treasury stood out, which a few months ago were around 2% and now they are close to 4%. “It is not a minor raise,” remarked Waldman..
In the last tenders, it was observed that very short-term fixed rate securities had been gaining some ground, taking into account the slowdown in inflation that is expected from now until the end of the year, something that can be reversed from the higher returns in the CER-adjusted segment.
Additionally, the market warns of pressures on inflation for 2022 if relative prices such as rates begin to correct. In this sense, for the medium term, CER securities continue to be preferred by a large part of investors, unless there is a significant rise in the returns on fixed-rate instruments.
In general terms, Paolicchi assured that “there is a deep uncertainty in the peso market.” “The Central Bank has been subsidizing the CCL dollar, with a daily sale of US $ 20 million in the last five rounds, which reflects that the exchange rate is cheap and encourages the sale of instruments in pesos,” he stressed.
Regarding fixed rate bills (Ledes), andn the recent tender, the Ministry of Finance offered a single instrument, with a return of 40.69%. “There is a rate that does not compensate for the risk and uncertainty in Argentina,” said the Empiria member.
For its part, Waldman sees that Economía does not have much incentive to raise the rate because the one it offers is already more favorable than the rest of the fixed-rate instruments on the market, taking into account, for example, that the Leliq pay 38%. But also, added the economist, “nobody will want to come to carry trade with a 45% rate”, for which they should upload it much more, something that he does not see feasible.
One of the peculiarities of last Thursday’s tender was that the Treasury left out 42% of what was offered by investors for the Lecer and the Lede, so as not to validate a higher rate hike.
The Treasury must balance its financing needs and the rate it validates, so that the latter is as sustainable as possible over time. “Lately he had not been getting enough to offer him, that is, there was no rate at which investors were willing to lend him. This time they did want to lend but they asked for a very high rate,” explained the Ecolatina economist.
So far this year, the Government has obtained net financing in the market in 2021 for $ 382,550 million, 117% compared to the maturities of debt in pesos that existed in the period. Although in the recent placement it managed to cover maturities of the week, the roll-over ratio was lower than the average for the first months of the year.
It should be remembered that Guzmán’s team proposed for this year to finance the deficit by 40% via the market, leaving 60% for monetary issuance. According to a report by Ecolatina, currently the proportion of financing is two-thirds of assistance from the Central Bank (1.8% of GDP) and a third of indebtedness (0.9% of GDP).
Analysts agree that this goal is increasingly difficult to achieve, taking into account that the maturities between the remainder of September and November are significant (more than $ 800,000 million) and that greater public spending is estimated in this second semester.