Naturally, one of these conditions is the yield offered by the titles. Another is the term. With investors focused on financing only in the short term, due to the uncertainty surrounding the next elections, doubts arise about the government’s ability to continue refinancing both debt maturities and the primary deficit.
There is an indicator called the “implicit forward rate” that allows us to know what the future performance expectations of the market are, based on the observation of the bills and bonds curve today. Technically, we understand this as the rates in effect today for a given time interval beginning in the future. When these forward rates are extrapolated from the spot rates of the bonds, they are called “implicit forward rates”.
Specifically, the forward rate between the T2X3 (matures on 08/13/2024) and the TX23 (3/23/23), like that between the TX24 (03/25/24) and the TX23, provides an indication of the rates that investors anticipate that the Treasury must validate to “roll” the TX23 at maturity, either by T2X3 or TX24 (based on data from 12/05/22 for T+2 operations). They are at +10.2% and +14.6% in real terms. For its part, the forward between T2X3 and TX24 stands at +17.4% plus CER.
At first glance, it is clear a crossroads that the government could face when renewing maturities next year, which is electoral, with all that this entails: Validate excessively high rates if you want to be placed with a 2024 term, resort to very short-term debt or rely on monetary financing. The first two alternatives naturally require validation, while the last one could have disruptive effects on the price of financial dollars and risks a potential failure to meet the goals set in the agreement with the IMF.
On the other hand, it remains to analyze two additional aspects. First, forward rates have remained high since the “run” on debt in pesos in June of this year. If we verify this indicator between the TX24 and T2X3 in the sessions of 06/30 and 07/29, levels of +17.1% and +26.7% are observed. Consequently, we see that the market has indicated for some time that it could be reluctant in 2023 to finance with a 2024 term. This reasoning can be extended even further: if investors do not want to buy with maturities in 2024, at some point they could refuse to buy debt maturing next year for fear that it will not be able to be paid due to lack of financing. Secondly, as a key to unlocking fresh funds, it is important to get signs that the contracts will be respected even in the face of a change of government, regardless of their political persuasion.
Are we in time to start dollarizing portfolios?
In the last two years, the ITCRM measured at the CCL exchange rate moved from a kind of floor given by the average real multilateral exchange rate of 2002 and a ceiling indicated by the level of overshooting at the exit of convertibility (although in upper moments).
Given that the ITCRM is currently closer to the minimum, despite the recent nominal depreciation, we see the current moment as favorable for portfolio dollarization. This does not necessarily materialize solely through the acquisition of currency, but also through the acquisition of hard dollar corporate loans that can be purchased in pesos in the secondary market.
Regarding investment in international stock markets, for example, through CEDEARs, we believe that better entry points could be found in the S&P 500 later on. Specifically, Deutsche Bank warned that the US economy could enter a recession in the middle of of 2023, at the same time that they estimated that the S&P 500 would suffer drops as of the third quarter of 2023, reaching up to -25%.
Research Team Leader of TSA Bursátil.
Source: Ambito
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