City guru warns about an anesthetized dollar, the harvest and the law Bases

The Government placed four bills in capitalizable pesos that mature on June 14, 2024 at a cut-off rate of 4.2% monthly, on July 1, 2024 at a cut-off rate of 4.1% monthly, on July 2024 at a cut-off rate of 4.0% monthly and on August 30, 2024 at a cut-off rate of 3.8% monthly, he explains.

“These rates are the new market reference, this money was placed by the banks by dismantling repo positions with the Central Bank,” warns Di Stefano. In this way, for the analyst, the government begins to eliminate the stock of remunerated liabilities of the monetary entity, exchanged a debt that was at a rate of 3.33% per month in the Central Bank for another much higher one that would now be paid by the treasury.

And it exemplifies that, if we take as a reference an average rate of 4.025%, and we calculate the effective rate, this would give us a rate of 60.6% annually, which would be higher than our projected 12-month inflation rate that would be 59.3% annually, this would not mean that the new reference rate would be positive against inflation at 0.8% annually.

Positive rates

In a single act, says Di Stefano, the Minister of Economy and the Central Bank defined that the interest rate will be positive against inflation, therefore, this will have consequences in the family of bonds in pesos adjusted for inflation.

The bonus TX26 is yielding inflation plus a negative rate of 3.0% annually, the TX28 bond is yielding inflation plus a negative rate of 0.5% annually, and the DICP bond is yielding inflation plus a rate of 4.5% annually. Bonds in CER pesos will begin to yield positive rates, therefore, there will be a rearrangement of prices between the different market offers.

Dollar bonds are attractivebut not because of the rate they payFor example, a bond in dollars like the AL30 has an internal rate of return of 21.4% annually, and the dollar would increase 29.8% annually in one year (it would be the effective rate of a monthly increase of 2.2 %). This bond at this rate does not beat the 59.3% annual inflation expected by our consulting firm, however, if it achieves a reduction in the rate due to capital appreciation, the scenario would be very different, adds the economist.

Bonds in dollars are very attractive due to the possibility that their parities will rise, reduce country risk and leave an interesting short-term return. They have two key dates ahead, the approval of the basic law, and the amortization and rent payment on July 9, 2024. In both cases the reaction of the securities should be bullish. “For the AL30 bond to have an IRR of 15% annually before paying amortization and income on July 9, the title should be worth US$70, from current values ​​there could be a 20% increase in dollars“, he maintains.

Argentina needs to show an increase in dollar bonds to achieve a reduction in country risk, and in this way obtain external financing. That is why today bonds in dollars become more attractive than bonds in pesos adjusted for inflation.

And it is as he explains well, the decline in inflation “does not leave bonds in pesos out of the market“that adjust for inflation, what takes away their incentive is that the government is offering capitalizable bills at rates higher than the expected inflation in one year. This change in the reference rate is very important.

Dollar Chapter

The dollar future market speaks through its quotes, the implicit rate of the future dollar is 42.7% per year, if I take it to the effective rate it is 52.1% per year, and is below the rate of expected inflation which is 59.3% annually, and below the effective rate of the average lecap which is 60.6% annually.

The government wants economic agents not to buy dollars, and to finance the treasury in order to finish eliminating the remunerated liabilities of the Central Bank. In this way it would be closer to a dollarization of the economy.

With positive interest rates compared to inflation, the purchase of dollars is no longer attractive. The MEP dollar ended at $1,071, the CCL dollar at $1,104 and the blue dollar at $1,120. These values ​​become unattractive if the government manages to lower the country risk, honors debt payments, continues on the path of achieving a fiscal surplus, continues with issuance levels in very low pesos, and above all, pays rates. positive interest rates against expected 12-month inflation.

Conclusion

Finally, the renowned analyst concludes that the government is changing the market reference rate, within the framework of a change of debt from the Central Bank to the Treasury, seeking to capitalize the balance of the central bank to reduce inflation levels, which in April showed a retail inflation rate of 8.8% and a wholesale inflation rate of 3.4%.

Di Stefano maintains that in this scenario, the treasury will have to make greater efforts to achieve a fiscal surplus, since it will have to pay more in interest per year. This will involve finding a way for Argentina to grow and achieve more tax revenue, combined with a greater reduction in public spending. Be careful with the level of activity in the future. This is why I am not so optimistic about stocks.

On the other hand, remember that the adjustment of the public sector continues, “which will affect public consumption, which can only be mitigated with an increase in private consumption“In order for private consumption to grow, it is necessary to reach higher levels of private investment than the current ones, otherwise the year 2024 will show a strong contraction of the GDP, and in the year 2025 the rebound will depend on the investment projected by the private sector. .

For the analyst, a scenario is coming in which placements in banks will begin to seek more returns in other financial assets, such as investment funds, which, placed in instruments such as Lecap or bonds in pesos adjusted for inflation, can double the return. of a fixed period. For more sophisticated investors, they can put together their own portfolio, combining capitalizable peso bills, inflation-adjusted peso bonds, and sovereign dollar bonds, in the proportion that best lets them sleep peacefully.

With the interest rates paid by the treasury, “the dollar bill would continue to be ironed in this context”, indicates. The Central Bank hoovers up pesos, irons the dollar, liquefies debts, puts a chainsaw into public spending, it is a complete appliance house, which took advantage of the Hot Sale and added more spice to the economy in May.

“Do not forget that the first-class soybean and corn harvest is being lifted, soon reserves above US$ 30,000 million, more reserves and positive rates in pesos, leave the dollar anesthetized for a time,” he concludes.