Bye-bye fixed-term deposits: what inflation-linked bonds are the market looking at?

The demand for Inflationary coverage has intensified in recent weeks after the latest data released by the National Institute of Statistics and Census (INDEC) was known. It happens that the 4% of the CPI for July, exceeded the expectations of 3.9% projected by the Market Expectations Survey (REM), from the Central Bank (BCRA). This turned investors’ attention to the bonds in pesos that adjust for price dynamics. In contrast, there is the classic fixed term which, with an Annual Nominal Rate (ANR) of 43%, in the best case scenario, would have an approximate monthly yield of 3.5%, below the CPI.

In this context, analysts highlight new opportunities in the titles that they adjust for Reference Stabilization Coefficient (CER), which reflects inflation and thus protects their investments in pesos. As a result, these financial instruments have experienced significant increases in recent days, although they have contracted slightly in recent sessions.

It happens that private high-frequency indicators reflects the resilience of core inflation for Augustwhich should be remembered was 3.7% in May, the same in June and 3.8% in July. Therefore, the implicit inflation calculated from the difference between the inflation-adjusted bonds (CER) and fixed rate bills (Lecaps) suggests that the market expects monthly inflation of 3.4% on average over the next five months, according to the latest fixed income report from Allaria.

The implicit inflation This is the result of comparing the yields of these two types of instruments. If a CER-adjustable bond yields more than a fixed-rate bond, this suggests that investors expect a certain increase in the CPI to compensate for the difference in yield.

“CER-adjustable long-term bond yields are still well above historical yields,” the document states. It adds that: The spread between a dollar-linked bond (TV25 – 11.6%) and a CER bond (T2X5 +4.6%) narrowed last weekbut it remains close to its maximum levels. “The market would be seeing a depreciation of the exchange rate 16% above inflation between now and March 2025,” he warns.

CER: Which are the peso bonds that are attracting the attention of the city?

In dialogue with Scope, Juan Manuel Francochief economist of SBS Groupanalyzes that within the CER segment, it finds the middle sectionparticularly securities maturing in 2026“Although spreads have compressed in recent trading sessions, we continue to see value in this asset class,” he says.

And in line with what was mentioned externally, Franco suggests that this is due to “some high-frequency inflation data show some stagnation in core disinflation At the same time, despite some rate increases, there is still a long way to go in adjusting relative prices, which could impact the overall CPI.” A key fact to keep in mind.

For Soledad Lopezresponsible for development at Stock Market Rava, The CER curve is most attractive to invest the pesos at present. This, “despite the Government’s expectations of a decrease in inflation, the last reported figure was 4%, with a core inflation of 3.8%, which shows the difficulty of breaking through these values,” he points out, in line with what was stated above.

Lopez explains that the market sees it difficult to achieve inflation of 0% or 1% in the coming months, ““The strategist believes that there may be greater inflationary pressure. For this reason, she has decided to cover her positions with CER bonds, which, given their yield, are a very attractive option,” she says.

For this reason, the strategist analyzes that CER bonds such as the “TX26/TX28 They yield a CER of more than 8 or 10 points, which is attractive for those who keep their funds in pesos and/or seek to diversify their portfolios.

Finally, Alejo Rivasresearch analyst at Balanceassures, in statements to this medium, that the market is incorporating the expectation that the restriction will remain in place at least until the end of the year. “This is reflected in the compression experienced by the Lecap and Rofex curves in the last week.”

In this context, he analyzes that It makes sense to seek coverage towards the end of 2024 or 2025given that the market is assigning almost zero probability to a currency correction. In any case, it suggests that for the short term it remains attractive “the carry in pesos, since the Government has its focus on lowering inflation, which is why we like the short section of the Lecap curve“. “For coverage, we like the Rofex futures maturing between January and February, and CER bonds maturing in 2026”in line with what was proposed by Franco of SBS.

Thus, There is renewed interest in the market for CER-indexed instruments, which is evidence of a hedging strategy against persistent inflation. Although this inflationary trend is expected to slow down, the market understands the complexity of containing inflation at current levels, which makes CER bonds remain an attractive option.