The market already almost assumes that there will be a devaluation jump, the only question is when it will be. With an accelerated exchange market dynamics over time, we see the right moment to dollarize portfolios close at hand. In this report we seek to summarize the best options in fixed income dollar-linkedand we discuss the advantages and risks of each.
The exchange market is increasingly stressed and the BCRA is losing reserves by the minute. The drop in the liquidation of agriculture cannot be offset by the restrictions on demand, which is why the BCRA has already sold USD 3,400 M. The tension in the exchange market will increase as the impact of the drought is felt , since a drop of USD 20,000 M in exports is expected. With such low levels of reserves, the pressure for a faster adjustment or even a jump in the exchange rate is mounting. For this reason, we suggest taking toppings.
Below we evaluate advantages and disadvantages of each type of dollar linked bond:
The Sovereign bonds They arise as the first option against a devaluation. So far this year there has been great demand for these instruments and both the TV24 and the dual TDF24 have returned 28% and 23%, respectively. Its rates are currently devaluing +6% and +3%, relatively high against their corporate peers, which are placed at 0% levels in the primary market. Another advantage of sovereigns is that they are highly liquid and can be bought and sold quickly with low transaction costs.
In any case, it is clear that these rate premiums have a reason for being. The opposition coalition Juntos por el Cambio recently expressed itself “against the abusive use of instruments set in dollars with interest rates impossible to pay.” It is very possible that as we get into the electoral year, the noise around the debt in pesos will reappear as a consequence of the political tensions.
The corporate segment is presented as the most conservative alternative. The problem being the low liquidity and number of options available, particularly when we limit the search to bonds maturing in 2024. Given the nature of the investment, it is important to analyze the company’s exposure to currency risk (particularly that there is no risk of mismatch). For this reason, we prioritize companies with a considerable part of their income from exports or activities abroad. Some examples of this are the Molinos, Vista or Cresud bonds.
In the event that this does not happen and that most of the company’s income is in pesos, it is key that the company does not have dollarized costs and that the proportion of debt in dollars over its income is reduced. The first is essential, since a company with income in pesos and costs in dollars (such as Edenor) has a large exposure to exchange risk, a risk that is amplified by having its debt indexed to the dollar.
iii. The provincial bonds and bills They are presented as another interesting alternative. Although they imply a greater exposure to sovereign risk, this is partially offset by the fact that they are usually guaranteed loans since the provinces have solid fiscal accounts. A recent example of this was the lyrics dollar-linked tendered by Neuquén on Tuesday, March 28, maturing in 2024 and 2026, guaranteed by co-participation and oil royalties, respectively. As with corporates, the problem in this segment is the lack of liquidity.
He Common Investment Fund (FCI) It allows access to many instruments that are no longer available on the market, in addition to having the advantage of being a diversified portfolio with active management. But these vehicles have a risk of their own: a devaluation jump can trigger a wave of bailouts trying to capitalize on it, which means that the devaluation jump may not be fully captured. In this sense, we recommend the FCI of Compass Fixed Income III, Delta Gestión IX and Toronto Trust Global Capital, among others.
Cohen Fixed Income Strategist Aliados Financieros
Source: Ambito
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