In recent years, the search for attractive yields in a high volatility environment has led to the Argentine financial market to explore different investment strategies. One of the most commented is the so -called “Carry Trade”which consists of taking advantage of interest rates in local currency to obtain benefits in strong currencies such as the US dollar.
In this article we analyze the possibility offered by the LECAP S31L5, a letter of the national treasure that expires in July 2025, and that presents a monthly effective rate of 3.16%.
What is Carry Trade and why is it relevant in Argentina?
The Carry Trade is a financial strategy that consists of borrowing in a low performance currency and placing that capital in assets called in another currency with greater profitability.
In the case of Argentina, the Carry Trade in pesos has been a usual tool for investors that bring dollars to the local market, make them pesos and place them into instruments that offer attractive rates in the short term, such as LECAPS issued by the national treasure.
This operation allows to capture a rate in pesos that exceeds the evolution of the exchange rate and the expected inflation, thus achieving a gain in dollars.
CHARACTERISTICS OF THE LECAP S31L5
The S31L5 LECAP is a capitalization letter that earns interest to a monthly effective rate close to 3.16 %, and that expires at the end of next July. For its short term, it is an ideal tool for the investor that seeks yields in pesos without assuming excessively long commitments in an economy that still presents exchange uncertainties and changes in monetary policy.
Investment simulation
Suppose an investor has US $50,000 to place in this instrument. To an official exchange rate of 1,205 pesos to dock, we would be turning about $ 60,250,000. Subscribing Lecaps with that capital, and with a monthly rate of 3.16 %, the investor would get about $ 62,153,900 in a month, that is, a nominal gain of about $ 1,903,900, equivalent to about US $ 1,559.36 at the official exchange rate. This represents a monthly return of 3.12% in dollars, a very attractive rate for such a short period.
Risks and considerations
Every Carry Trade strategy should consider exchange risks. The final profitability depends to a large extent that the evolution of the official exchange rate and the exchange gap are moderate. While the official exchange rate has shown stability in recent months, it is important that the investor keeps in mind that any abrupt jump in the dollar price could reduce or even cancel the profit in hard currency. Likewise, inflation is another key factor that can erode real yields in pesos if the rate offered by the LECAP is surpassed by the price index.
Fiscal and operational advantages
Being an instrument issued by the National Treasury, the LECAP S31L5 has the support of the State, and its tax treatment is simple for natural and legal persons.
In addition, the secondary market for this type of letters is liquid enough so that the investor who wishes to anticipate his departure before the expiration can do so without major difficulties, ensuring flexibility and adaptability to changes in the economic scenario.
Macroeconomic context
The current monetary policy of the Central Bank seeks to maintain real positive rates to contain inflationary pressure and promote demand for pesos. In this scenario, the Treasury has increased the issuance of short instruments such as LECAPS, which allow investors to capture monthly monthly yields. This policy is part of the short -term plan to contain excess weights in circulation and reduce the dependence of the financing of the Central Bank, giving greater predictability to debt instruments.
Comparison with other investments
If the returns of the S31L5 LECAP are compared against other instruments in pesos, such as fixed deadlines or common investment funds of Money Market, the advantage is clear: the rate offered by the LECAPS is higher than that banks pay in a similar period and, in addition, they are negotiable instruments in the secondary market. On the other hand, when comparing it against instruments in dollars such as sovereign bonds or yields, Carry Trade offers yield that depends on exchange stability.
That is why it is an ideal tool for investors that bet on a foreseeable exchange policy and short term.
Conclusion
In short, S31L5 LECAPS represents an attractive investment opportunity for those who seek yields in pesos with a very short time horizon. Its monthly rate of 3.16%, its liquidity and the possibility of capturing a gain close to 3.12% in dollars in just one month make this instrument an extremely competitive option.
As in every Carry Trade, it is recommended that the investor evaluate his risk profile and consult his advisor to understand the impact of possible changes on exchange policy or the local economy before investing.
This type of strategy, well managed, can offer interesting returns in the short term, especially in an economy in which the instruments in pesos issued by the State have rates that exceed the expected inflation and exchange costs in the month.
Therefore, the LECAP S31L5 is a key tool to consider in portfolios that seek stability and profitability in the next 30 days
Financial Analyst
Source: Ambito
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