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Sovereign bonds vs. negotiable obligations: which seduces the market in the face of political uncertainty

Sovereign bonds vs.  negotiable obligations: which seduces the market in the face of political uncertainty
Sovereign bonds vs.  negotiable obligations: which seduces the market in the face of political uncertainty

And in the short term “There are still important definitions in Congress with important implications for the Government’s fiscal objectives.” For this reason, “it will be key for Deputies to reject the modifications that the Senate made to the fiscal package,” says Mazza. Likewise, the market closely follows the treatment that the new mobility project receives. retirement bill in the Upper House that, if approved, would have a cost of approximately 0.5% of the Gross Domestic Product (GDP) on the State coffers.

From a more structural perspective, says the strategist, if BCRA purchases do not rebound quickly, “the Government will have lost a fundamental pillar to accumulate reserves.” And that translates into: “lower reserves equal lower repayment capacity, so the exchange rate delay could have a very negative impact on sovereign parities.”

In this context, the analysts consulted by Ambit agree that it would seem to be a good time to rotate portfolio towards the corporate debtwhich is much less volatile and pays Internal Rates of Return (IRRs) close to 8.0% annually. Let’s see what the city’s experts think.

Portfolio rotation to ONs

Juan Manuel FrancoChief Economist SBS Groupcomments to this medium that the “sovereign rally slowed down a bit“, a product of both the uncertainty in political matters and lower liquidation flows of total exports, “something that put pressure on the exchange gap” and which indicates that “the market continues to wait for a firmer delivery in terms of economic policy to to think about unlocking the value of sovereigns”.

In this context, Franco believes that for conservative or moderate investors there could be value in “partially unwind positions in sovereigns towards corporates of high quality that would experience less volatility” if there were an increase in said uncertainty, in line with what was proposed by Mazza.

Optimism for sovereigns remains

Adrian Yarde Bullerchief strategist of Facimex Securities, analyzes that the dynamics of May showed “very clearly” that investors were concerned about the lack of progress in Congress. Thus, the macro data that was known “was excellent, including the BCRA’s exchange intervention that closed the best May in history.”

For Yarde Buller, the approval of the Bases law will be an important catalyst in that regard, allowing the market to look again at the dynamics of macro variables and the progress that the economic team is making in correcting imbalances. In that context, from Facimex they continue to prioritize “sovereign bonds, since they continue to be over-punished and should continue to recover if the correction of imbalances advances, especially when the process of lifting exchange controls begins”.

For the strategist, the universe of corporate bonds was overrated compared to the sovereign and provincial curve, “with some specific cases, beginning to look overvalued even when compared against other corporate credits in the region.”

While, Federico Victorioof Andean Investmentsshares a similar view on the matter and believes that “there is no driver or red flag, particularly for sovereign bonds” that is not what usually happens in a country and in a market, “very influenced by politics.”

markets actions finance investments live dollar

For Victorio, beyond the volatility inherent to this type of instruments in a country that faces profound changes, what the market looks at is the macro: “accumulation of reserves, fiscal deficit, willingness and commitment to pay obligations, evolution of country risk,” among others. All variables that have led to a “fantastic rally in these six months, beyond some corrections that have occurred in recent weeks”.

However, Victorio highlights that it is important to understand that bonuses are instruments for aggressive profilessince they are exposed to a lot of volatility, “where perhaps the weeks in which there is more political noise correct 10% in dollars” and that is precisely why it is very important to diversify portfolios very well and also have exposure to other fixed income instruments such as Negotiable ObligationsProvincial Bonds, Cedears and shares.

And he adds that “ONs can be interesting not only for diversification, but also for conservative profiles that seek to maintain the value of capital and yield in hard currency without being exposed to so much volatility.”

A sector seduces the market

Maria MoyanoInstitutional Sales Trader Adcapslips that the corporate bonds that seduce the market are those that recently benefited from the increase in electricity generation rates.

“Specifically, during the last week a 25% increase in the price of base energy was authorized. That’s a great notice“, comments the strategist, especially for Pampa Energía and Central Puertowho have an important part of their generation under that scheme.

What negotiable obligations does the market look at?

Franco of the SBS Group believes that ONs of companies such as Pampa, Transportadora de Gas del Sur, Arcor or Vista They may be attractive alternatives in this context. Although he highlights that if “economic normalization” deepens, there would continue to be value in sovereign bonds in dollars in the medium term, in line with other analysts.

Victorio, for his part, recommends the YMCID of YPF, the ON CRCJD and YMCJD, “which are the favorites of Inversiones Andinas”, even sharing more conservative options such as VSCPD at 7.5% is an interesting opportunity if you analyze what comparable AAA credits yield. Finally, for the most daring, the strategist proposes the MCAD or MSSED yielding above 10%, which can be an interesting option to diversify as well, although he recommends not having more than 10% of the portfolio here.

Yarde Buller, from Facimex, assures that, “although we are suggesting maintaining a minimum exposure to corporates in fixed income portfolios in dollars,” within that universe We see relative attractiveness in YPF Luz 2026 (YFC2O), Pampa Energía 2026 (MGC9O), TGS 2025 (TSC2O) and Genneia 2027 (GNCXO).

According to analysts, hard dollar sovereign bonds continue to be the big favorites in the fight against the ONs. This is because there is room for, according to the Government, progress in correcting the economic imbalances, extending the good performance that put the brakes on in recent weeks. However, corporate debt emerges as an ideal instrument for those who seek not to be exposed to the political ups and downs of Argentina.

Source: Ambito

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