Goodbye carry trade? The variables that could change the game for the dollar

The current debate is focused on the comparison between Lecap, CER bonds and the option of dollarizing portfolios. In this context, it is worth remembering that the Ministry of Economy carried out this week the last placement of debt in pesos corresponding to August.

In this operation, were issued four fixed-rate notes (LECAP) and one inflation-adjusted bond (CER), totaling $4.47 billion. This process allowed for the renewal of maturities at the end of the month and the collection of a surplus of $860 billion, which will strengthen the liquidity cushion in the face of the high commitments in September. One BONCER and two dollarized bonds were declared void.

Focus on the Carry Trade

Investors who opt for peso investments analyze the rates of local securities in comparison to inflation and the expected future exchange rate. When evaluating the performance of a peso bond against inflation, the goal is to obtain real returns, i.e., interest rates that outpace price increasesWith Lecap rates averaging 3.8% and REM inflation projections, investors who position themselves in these securities would have the possibility of matching or exceeding the inflationary rate.

The optimal scenario for investors would be to obtain real returns in dollars, which implies overcoming inflation and that the exchange rate does not increase faster than the rate offered by the Lecap.

According to analysts, for investments in Lecap to be profitable in terms of hard currency, the exchange rate in October should not exceed $1,368. This means that the financial exchange rate should increase by less than 6% for the investor to obtain profits in dollars through investments in pesos.For December, the exchange rate should remain below $1462, with an increase of less than 13% for the carry trade with Lecap to be effective.

The attractiveness of investments in pesos at current exchange rate and inflation levels will depend on whether these factors meet profitability expectations.

The view of one of the city’s great players

In the latest report of Adcap Financial Group They address the strategy via carry trade. The document argues that it is not sufficiently attractive “considering the risk-return”.

The paper notes that for aggressive investors with an optimistic view, “Buying Lecaps denominated in pesos can be attractive given the 43% return for December 2024 that they offer in a gap compression scenario.

“However, when considering a moderately optimistic approachwe should include a 5% BCS gap plus a 17.5% jump in the exchange rate (equal to the scheduled reduction of the Country Tax), which reduces performance to 16%”, add.

And as he explains, the Scenarios in which the gap narrows are consistent only with dollar inflowswhich could come from the Asset Regularization Regime or from sales by agro-exporters. “In our opinion, significant dollar inflows would be the catalyst that breaks the ceiling of our trading range and allows for a return of 29% for GD35, or even higher,” analyzes.

• Operating the gap: Bank balance sheets improve when the gap narrows, so they are a leveraged way to be long pesos. For those who want to benefit from the gap reduction, we recommend a portfolio of Bopreal Series 3, GD35 and GGAL.