Key information for investors: how the Fed’s policy affects Argentina’s bonds and fixed income

Investors around the world have their eyes set on the monetary policy of the United States Federal Reserve (Fed). The underlying personal consumption expenditure index at 2.9%. This is better than expected data and the first time that the indicator fell below 3% since The central bank began its aggressive rate hikebut the market contemplates that, perhaps, the organization will keep the index unchanged after the next meeting, which will be in March. How does this impact the dynamics of Argentine fixed income?

The improvement in the variables that had been seen suggested that inflation will have cooled enough in March for the central bank of that country to apply a rate reduction, but in recent days that possibility seems a little more distant. Traders now believe that a first Fed rate cut could come as soon as April or May.

For him market specialist Marcelo Bastante“the fact that this week it became known that The US GDP grew more than expected and that the balance sheets of public companies in some cases also present better real data that the forecasts generate a positive economic context” and points out that, this, added to the expectation that a process of reducing FED rates can begin, can have a favorable impact on local fixed income.

And, as described F2 Soluciones Financieras analyst Andrés Reschini“the rate set by the Fed marks the yield floor in the United States and affects American Treasury bonds“, which are considered risk-free, which explains that, If the Fed decides to keep rates high, there will be more capital flows that will go towards North American securities. and, therefore, less for Argentine fixed income.

If this trend occurs, higher returns on US securities will be generated and, consequently, lower value of the premises. If the Fed decided to lower rates, the opposite would happen: a greater flow of capital would go to emerging markets and that could benefit local fixed income.

Along the same lines, he points Salvador Vitelli, from Romano Groupwhen he points out that “By raising the US reference rate, it is as if it turned on a dollar vacuum cleaner towards US bondswhich are considered risk-free instruments.” This generates compression of the flows of emerging countries, so, to the extent that the flexibility of the monetary policy rate begins to occur, and moves towards a downward trend, the emerging markets They could benefit and, among them, is Argentina.

However, Vitelli warns that “although Any lowering of rates facilitates the entry of capitalthe country has to do its part to seduce these funds.” And he considers that, for this, it is key to allow the free exit of capital from Argentina so that it can also enter.

On the other hand, Bastante points out that “The local market is very eager to see how the treatment of the Decree of Necessity and Urgency (DNU) and the omnibus law evolve.“For him, these 2 aspects have a greater impact than the global context at this time, although he highlights that the international trend for the coming months seems to be favorable for Argentine bonds.

Thus, the outlook is presented as positive if conditions improve for emerging markets. And Vitelli anticipates that, looking at future prospects, “if the Fed rate lowers and Argentina improves conditions for investors, we can begin to see a positive influence for the capital market and the local economy.”