With just over a week until the national legislative elections, after which the market believes that the official dollar could accelerate its upward momentum, investors are closely watching the linked dollar bonds as a hedging option. However, an important city firm believes that It is better to bet on the Bopreales.
Although the US Treasury, headed by Scott Bessent, began to intervene in the local exchange market to contain the dollar, High demand due to political uncertainty could trigger prices again. In addition, it is believed that there could be a change in the exchange rate scheme after the results of October 26 are announced.
Why dollar linked bonds are not the best option
In this framework, the specialists of Delphos Investment they indicated that favor hedging strategies in Bopreales of the Central Bank shorts on dollar linked bonds. “What seemed like unconditional support from the US remains in doubt after Donald Trump’s statements, generating a new wave of uncertainty. In this way, the US president’s statements revived the perception of risk and the possibility of returning to the scenario prior to the assistance announcement, when the pressure on the exchange rate was more intense,” executives recounted in a report.
Last Tuesday the president Javier Milei and the Argentine delegation had lunch at the White House with their counterpart trump and to the head of the Treasury, after the financial assistance granted to the Argentina. Trump gave strong support to Milei, but linked it to the outcome of the upcoming legislative elections: “If Milei loses the elections, we will not be generous with Argentina.”
Faced with this context of uncertainty, in fact, Delplos considers: “For conservative profiles seeking devaluation coverage with carry in dollars, we prefer short-duration Bopreales (BPOB7) over dollar-linked ones (DLK): their low duration, the current risk/return ratio and their relative price position them as a better defensive alternative in the face of electoral proximity.”
Rate compression
The increase in demand for currency hedging after the last liquidation generated a strong compression in linked dollar instruments and an increase in implicit devaluation rates. The greater search for protection against the exchange rate pushed up the implicit rates in the A3 futures market, which already exceed the fixed rate forward curve, and caused a fall in the yields of bonds linked to the dollar.
In this context, before the change in withholdings, the market estimated an indifference MEP real exchange rate (RER) for December 2026 at $1,480, with the CER 2026 bonds yielding 18% internal rate of return (IRR) and the long Bopreales, around 13.5%.
After Bessent’s announcement, the IRR of the CER 2026 rose to 27%, raising the indifference RER above $1,750, a level similar to the 95th percentile of the Multilateral RER (TCRM) during Mauricio Macri’s administration.
According to Delphos, The recent compression of real rates reduced this value to around $1,630although there is still room for a new adjustment in exchange rate expectations. MEP break-even exchange rates also anticipate tensions, sitting above the band ceiling since late November. This reflects that the market does not trust in the sustainability of the exchange rate band regime, despite the repeated guarantees of the economic team and the statements of the president of the Central Bank, Santiago Bausili, ratifying its continuity after the elections.
The best coverage
“In the relative relationship between Bopreales and dollar linked bonds, the advantage is maintained in favor of the former, both in price and in terms of implied gap. The BPOB7/TZV26 ratio improved significantly and the implicit break-even gap is in negative territory, so even under the assumption of zero gap Bopreales offer better coverage at these rates,” said the investment company’s strategists.
In this way, “they allow you to cover devaluation risk with carry in dollars and benefit from possible positive news from the United States,” the consultancy explained. “There is a valid argument in favor of dollar linked: given a potential tail risk, the Bopreales parity is high,” they added.
However, they clarified that “We assign a low probability to a short-term default of the Bopreales. In the event of a shortage of dollars, history shows that the first thing done is to return to the exchange rate, which would impact the linked dollar and not the Bopreales, which are hard dollars at the exchange rate published by ARCA.”
Source: Ambito
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