The Central Bank began this morning the operation with which, it claims, it will close the last tap of monetary emission: the repurchase of liquidity insurance on government securitiesknown as putsthat the own BCRA had sold them to the banks to accept financing the Treasury. There are many in the market doubts about what movements there will be in the debt curve in pesos Once the banks are left holding a mountain of $17 trillion of uninsured securities (mostly long-term). There are already those in financial institutions and among analysts They expect the Treasury to offer some kind of exchange to try to avoid disruptive movements amid exchange rate pressures.
After a series of negotiations and also accusations by Javier Milei against a bank for having made use of the insurance that the Central Bank itself had sold him, late on Tuesday the monetary authority announced the formal call for the repurchase of the puts. The operation will be open this Wednesday and Thursday between 11:00 and 16:00 and the settlement will take place this Thursday.
The buyback will be for the value of the premium paid by the banks to access the insurance, adjusted for inflation. This will mean that, if each of the banks decides to accept the proposal and cancel all the puts it holds, The BCRA will have to issue between $180,000 million and $300,000 million to repurchase themaccording to various private estimates and from public sources. This is the cost that the Government chooses to pay to avoid that, in the event of a run, the entities have the possibility of executing in one go a good part of the almost $17 billion in insured bonds.
What are puts?
Puts are liquidity options that the Central Bank sold to financial institutions so that they would agree to lend to the Treasury and imply a Commitment to repurchase the insured securities by the monetary authority when the banks decide to sell them. There are two ways. Most of these insurances offer the possibility of executing the contract at any time.. A smaller portion of the puts can only be exercised one month before the maturity of the insured bond.
This type of instruments began to be placed last year, when the management of Alberto Fernandez encouraged banks to participate in the tenders of the Ministry of Finance. However, They were also used in large quantities by the government of Javier Milei during the first few months, as part of the initial strategy to encourage financial institutions to migrate their holdings of remunerated liabilities from the BCRA to Treasury debt.
The problem is that that mass of liabilities which the Central Bank had removed from its balance sheet and transferred to the Treasury, Being covered with puts, it constituted a latent debt for the entity chaired by Santiago Bausili since, ultimately, it could be forced to respond with monetary issuance in the event that a change in market mood unleashed a wave of massive execution of contracts. An example of this was given a few days ago, when Banco Macro made use of its put option to the BCRA for $2 billion. A decision that unleashed the wrath of the President.
In official offices they estimated the remaining stock of puts at around $17 billion. The consulting firm 1816 estimated it to be somewhat below that number after the last execution.
Since the securities in question were backed by the BCRA, they did not count towards the Treasury financing limit that financial institutions have by law. To pave the way for the repurchase, the Central Bank ordered this week that these securities will continue not to count towards this limit even after the put is rescinded. Thus, in fact, the securities Banks will increase their exposure to “Treasury risk”.
Milei mentioned recently that ending the puts was one of the necessary steps to dismantle the exchange rate trapalthough it later added other conditions (such as the fact that inflation and the rate of devaluation converge around 0%) in a sequence that seemed to once again postpone the prospects of the promised opening of exchange controls and added uncertainty to the market.
However, various voices raise objections to the fact that this operation has such a direct relationship with the possibility of improving the conditions for leaving the currency controls without currency shocks. And they argue that, beyond the fact that they are not covered by puts, the securities have as a counterpart the deposits of savers, which are ultimately those that could potentially put pressure on the dollar.
Puts, debt and the day after
Having been previously negotiated, City sources expect high acceptance from banks. The doubtsin any case, They are going through what will happen after the buyback of the puts with the Treasury bonds which will remain in the hands of the banks but without that coverage.
According to market estimates, a large part of the securities backed by puts so far are long-term CER (inflation-adjusted) bonds: 2025, 2026 and 2027. Since banks have the bulk of their liabilities in short terms (fixed-term deposits, current accounts, etc.), no one expects them to keep the long-term bonds without anything in return.
“I think the government will have to offer something for this mass of pesos. If not, it will be shooting itself in the foot,” said a City analyst, referring to the fact that if the Ministry of Finance does not try to channel future portfolio movements of banks, it could impact prices and rates in the peso curve, at a time of strong exchange rate tension.
In that sense, A source from the banking sector told Ámbito that the Treasury should offer securities for “an exchange with logical duration” that regulates the flow of liquidity.
“It is very likely that there will be an offer to the banks to exchange those long bonds for short bonds. Because the truth is that they are left very unequipped and with an instrument that can become very volatile,” said the financial analyst. Christian ButelerHe added: “It would be healthy if they were not placed for such a long time. Althoughon the other hand, This is detrimental to the needs of the Treasury. Because, instead of extending the duration, you would be taking out long-term debt to place short-term debt. The sheet is too short And here he is stripping one saint to dress another every five minutes.”
From Adcap Grupo Financiero, meanwhile, stated: “We do not see the put offer as attractive because it is a premium adjusted for inflation. It only returns what they initially paid to extend duration to 2025, 2026 and 2027. But since it is a voluntary negotiation, Most banks will probably decide to accept the offer and ask for some other type of liquidity guarantee.“.
However, doubts are added to the expectation to see how the new monetary scheme turns out in practice. Next Monday, the Central Bank will stop issuing repos and will begin to manage liquidity through an instrument issued by the Treasury: the LEFIThis is the measure through which the economic team will make the final migration of the remunerated debt of the BCRA (which will stop issuing to pay interest) to the hands of the treasury, which will take charge of those interests at the cost of a greater adjustment in other items.
Source: Ambito
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