He Ministry of Economy and Finance (MEF) published the issuance calendar in the local market for the first half of the year, and the Treasury Notes in Units Pension (UP) seem to be positioned as the favorites among investors who are betting on 2024 in Uruguay marked by the drop in inflation and the interest rate, but with an increase in salaries.
The last months of 2023 already marked a trend in the domestic market, based on the dynamics of supply and demand in MEF issues: the performance of the tenders in Indexed Units (UI) and in pesos (UYU) It declined as the year went on, while the grades in UP remained more constant.
With the publication of the January – July calendar, the picture begins to be a little clearer: 52% of the first semester offer — a total equivalent to 465 million dollars — is a UP, while 39% is in UI , and the remaining 9% in pesos.
Likewise, the MEF recalibrated shorter term the offer in UP, going from maturities between 2036 and 2040 to between 2029 and 2036; from the issuance of the Series 7which will be tendered for the first time on February 20 and will have two reopenings during the first half of the year — in April and June.
Series 6, due in 2036, will be the other major protagonist in this unit in the first half, with reopenings in January, March and May.
The reading that analysts make is that the current economic situation of Uruguay makes investors lean towards the Pension Unit, which is emerging as the new agents’ favoriteas noted by the financial education site Personal Sherpa.
Why are the UPs gaining ground?
2023 was a year marked by a significant drop in inflation to the point that the Consumer Price Index (CPI) was located within the target range —between 3% and 6%— much of the second semester. In this sense, investments in UI, a unit tied to the evolution of inflation, were losing attractiveness as the price escalation slowed down. It is enough to remember that the October reopening of the Series 29 maturing in 2034 was void.
On the other hand, and although the Uruguayan peso remained relatively strong in relation to the dollar, the Central Bank of Uruguay (BCU) cut the reference interest rates by a total of 250 basis points, passing the Monetary Policy Rate (MPR) from 11.5% to 9% at the end of the year. Although rates remain weak—especially in relation to inflation—the decline in yields influenced investors and the performance of bidding in UYU—within a positive context for all MEF issues.
Finally, the UP, whose value accumulates the monthly variation of the Average Nominal Wage Index (IMSN)benefited from the increase in real wages and the recovery of workers’ income.
In that sense, the 4% increase in November – an interannual variation of the IMSN of 8.39% – marked a record for that month, as a prelude to the increase in National Minimum Wage by 5.5% starting this year and the recovery of purchasing power between 2024 and 2025 agreed in the 10th Round of Salary Council.
This growth in agents’ appetite for UPs could also be seen in the performance of the tenders in this unit: from the Series 3 (2040), only the October reopening had a lower demand than the amount officially offered, and a figure above the initial offer was also awarded; the Series 5 (2047) It had awards for double the amount offered in all its issues; and the Series 6 (2036) It also had high demand in its three 2023 tenders.
The calendar for the first semester
On the first business day of the year, the MEF reported the tentative schedule for the placement of public debt for the first half of the year, comprised of 12 reopenings and 3 new instrument emissions (in UYU, UI and UP). Of the total amount in dollars, 52% corresponds to Notes in UP; 39% in UI, and 9% in UYU.
Regarding new emissions, the Note in UYU Series 11 with a maturity date of December 7, 2026, it will take place on February 6, for a tendered amount of 600 million pesos. The Series 7 in UP Expiring on February 21, 2029, it will be auctioned on February 20 for 1.2 billion units; while the Note on UI Series 32due on February 28, 2036, will be tendered on February 27 for 200 million units.
The amortization scheme Series 11 is at maturity, while the Series 7 and the Series 32 They are amortizable, that is, they repay the capital through equal, annual and consecutive payments over the last three years.
The Debt Management Unit (UGD) of the MEF clarifies that in the case of the Treasury Note in UI (Series 31) and the Treasury Note in UYU (Series 11)the capital will be fully amortized in a single payment at maturity.
At the same time, in the tenders corresponding to the Series 31 in UI, Series 11 in UYU and Series 7 in UPyou can also integrate, as a form of payment, the Monetary Regulation Bills (LRM) issued by the Central Bank of Uruguay (BCU) in all maturity periods.
Source: Ambito
