The news of the week in the financial market was the successful return of the Letra del Capitalizable National Treasury in Pesosknown in the jargon as LECAPS.
These are debt securities in pesos that accrue and capitalize at a fixed monthly rate and pay the principal plus the accumulated interest at maturity.
The result is auspicious because it marks renewed optimism in the financial market regarding future inflation.
What are LECAPS?
Are National Treasury Bills Capitalizable in Pesos. These instruments had not been issued since the August 2019 reprofile and had been replaced in the previous administration by the LEDES (National Treasury Bill In Discount Pesos).
In financial terms, there is no difference between a LECAP and one LEDEsince both are instruments in pesos at a fixed rate.
Why was the placement successful?
We consider the placement to be successful for several reasons. Firstly, it meant the reopening of the debt market in pesos at a fixed rate. The last placement of a LEDE It had been December 20, 2023.
Secondly, it captured a total demand of P$2.3 billion, representing more than 70% of the cash value offered in the tender.
Thirdly, the term of the debt security is long for what are usually fixed rate issues. The brand new LECAP expires on 01/31/2025, representing a term of more than 10 months, while the last placement of YOU GIVE It had been within 1 month.
Lastly, the most surprising thing was the cut rate. The news LECAPS They were issued at a rate of 5.5% monthly, equivalent to an Annual Effective Rate (TEA) of 89.4%. This represents a drop of 82 percentage points compared to the last mentioned LEDES placement (TEA: 171%).
What conclusions can we obtain?
The returns on fixed-rate instruments are useful for comparison with the returns on inflation-adjustable instruments. From this comparison, one can calculate what is the inflation rate that leaves me indifferent between investing in each of these bonds. This value is known as “breakeven inflation” and it serves to measure on a daily basis what inflation the market expects.
When comparing the results of the tender of the LECAP With the yield offered by a CER bond with a similar term (T2X5), we conclude that the inflation expected by the market for 2024 is 171% for 2024. When comparing this result with what was revealed by the BCRA in its latest inflation expectations survey , it is clear that the market is very optimistic with the evolution of the disinflation path.
Expected Inflation 2024: REM Results vs. breakeven BONCER
Likewise, although there is no doubt that the result of this tender is something to celebrate, the excessive demand for instruments in pesos at negative rates also shows that there is still a surplus of pesos trapped in the stocks
Furthermore, they indicate that the market believes that negative rates will remain for quite some time, which necessarily requires assuming that the lifting of exchange restrictions is not yet close.
Therefore, we maintain our vision that they will be progressively removed during the year, monitoring the impact they may have on the free exchange rate.
Is it time to invest in a fixed rate then?
Despite the government’s resounding success with this placement, we do not believe it is a good time to invest our savings in pesos. Although there is a growing interest from international investors in building investment positions carry trade, We have a marked preference for debt in dollars at current prices.
The financial exchange rate has accumulated an appreciation in real terms of 22.6% so far this year and the interest rate is at extremely negative levels. We believe that both situations are a consequence of the selling flow of dollars as a result of the Export Increase Program and the strong exchange controls, respectively, which makes them naturally unsustainable.
Furthermore, although global bonds accumulate gains over the year of more than 23% on average, return rates continue to be between 17.5% and 27% annually. These yields are well above the 7.5% to 9.5% offered by sovereign bonds from countries with highly speculative credit ratings (B+; B or B-), such as the one Argentina held during 2017, offering potential capital gains. very attractive.
Source: Ambito

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