Bond portfolio: after Caputo’s inflation forecast, is it better to go to the dollar or the CER curve?

Bond portfolio: after Caputo’s inflation forecast, is it better to go to the dollar or the CER curve?

Regarding the weight curve, Securities tied to the dollar were the most chosen by City analysts in the first weeks of the year. And they anticipated that, with a backward exchange rate like the official one, which advances at a rate of 2% monthlyfar behind an inflation that was 25.5% in December and 20.6% in Januarythe Government should devalue at some point.

Bonds: what happens to fixed income

As described in a report by Cohen Financial Allies“wholesale prices grew 18% m/m in january (vs. 20.6% the CPI) after the strong increase in December above 50%, and thus reached an annual variation of 317% (vs. 254% the CPI).”

In that context, the sovereign curves in pesos come with a good streak: CER bonds have an upward trend just like Lecer bonds. Meanwhile, dollar securities operated on Tuesday with average increases of 1% in the US, but ended with a majority of losses in the local stock market after an important positive streak.

Thus, the Sovereign bonds They accumulate a profit close to 10% so far this month and 15% for the year. This way, The country risk fell and approached 1,700 bps. This occurs in a context in which the official dollar marks a devaluation that runs at a monthly effective rate (TEM) of 2% and in which the Government is achieving historic levels in cutting public spending.

Caputo’s expectation for inflation

The fixed income market dynamics shows a slight change in trend. “You are seeing a transfer of part of investors from dollar linked and hard dollar bonds to those adjusted for inflation”, he describes in dialogue with Ambit the market analyst Elena Alonso. And he affirms that it is likely that in the balance of February and March these instruments will outperform those tied to the exchange rate in performance, given the exchange rate delay and the prevailing inflationary inertia.

It is a completely understandable reaction taking into account that the Argentine economy currently registers the highest inflation rate in the world after suffering an increase of 254.2% in the last 12 months. However, Caputo stated this Monday that February retail prices will be “closer to 10% than 20%”, far from the 20.6% that the country registered in January. And the dilemma that arises is whether CER bonds continue to be attractive for the investor in this scenario.

“What must be taken into account when analyzing which bonds it is best to bet on are the investment terms that are proposed,” answers the question. economist expert in capital markets Christian Buteler. This is because, for example, lThe CER instruments lost against the linked dollar in the last two months.


Fixed income is closely tied to the dynamics of economic policy.


With an exchange rate that moved 2% against a CER that was updated with inflation around 25% and 20%, it is clear that inflation remains high and the dollar behind, but Buteler warns that “we must see how long the Government can maintain the crawling peg of 2%.” And he anticipates that he most likely “won’t be able to sustain it much past March.”

With a similar perspective, Alonso indicates that “seeing the photo in the short term, Inflation-linked bonds, CERs, are an interesting option” and assures that, regardless of what happens in the next semester, in the long term it is expected that it will rise during the year.

Hence, If you are doing a business in the short term, you think that “it is advisable to go for inflation at this moment, beyond the expectation that it will decrease in the second semester.”

CER bond yields

Thus, for market analyst Matias Marsicano, “today, CER bonds that are above par end up being expensive for the performance and coverage prospects they offer.” On the other hand, consider that the longer ones, like the TX26, for example, continue to maintain their attractiveness. “The short part of the curve seems to me to be a sale,” he says.

However, on the other hand, Alonso warns that even CERs do not fully cover the investor against inflation: “For example, The TX26, which is the most demanded inflation-linked bond, is yielding 10 points below the CPI“, says.

And it is that, There are not many options that offer a better level of coverage right now on the market and the dollar has been losing “like in war” in recent months against inflation.

one dollar.jpg

The dollar is far behind inflation.

The dollar is far behind inflation.

But, Moving forward, meanwhile, Epyca Consultores economist Joel Lupieri indicates that, “if there is no devaluation like the one the market is expecting“There is going to be a very strong exchange rate delay.”

After Caputo’s sayings: are CER bonds appropriate?

Thus, he anticipates that The bet on the dollar linked depends a lot on how the official exchange rate follows and what is the pace of devaluation that the Government wants to set.

In line with this position, Buteler points out that We will have to see what the Government defines to do with the official dollar. Caputo slipped in the aforementioned interview that he hopes be able to keep the crawling peg actively avoid a sudden jump in the exchange rate in the future, but the market does not completely rule out this possibility.

Thus, as Buteler maintains, “It all depends on whether for April or May the BCRA maintains the crawling peg, how much the official devalues ​​or whether it ends up unifying the exchange rate finally.” and then see what happens.”

Consequently, for Alonso, The smartest thing when betting on fixed income today is not to have everything invested in CER bonds. He warns that this move “is quite risky” and assures that the best thing would be to have a more diversified portfolio. “It is good to have some assets tied to the dollar in case inflation flattens and the dollar takes off a little,” he notes.

Source: Ambito

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