The government showed pragmatism by making more flexible position regarding the accumulation of reserves between bands, which should help compress the country risk and reopen the international debt markets to refinance maturity before expected.
The government’s economic team announced last Monday a series of coordinated measures between the Ministry of Economy and the BCRA with two clear objectives: the strengthening of international reserves and the consolidation of control of monetary aggregates. For the active investor, these decisions can justify movements in their investment portfolios. In this column, we will review the announced measures, as well as the expected impact on financial variables and how we adjust our investment recommendations before the new scenario.
Regarding Strengthening of reservesa program of Treasury title tender subscribable in dollars. As reported, the Treasury will incorporate the possibility of subscribing titles with dollars into its biweekly tenders schedule. The first experience had already taken place two weeks ago when the brand new was broadcast Bonte 2030Bonus in pesos, at a fixed rate of 29.5%, with expiration in 5 years and with an anticipated rescue option only on May 30, 2027. That tender had been successful, marking the reopening of the Argentine debt market for international investors. Also, it allowed investors to obtain a gain of 10.5% to date, exceeding the depreciation of the currency in the same period (3.3%). In addition, the repoinated by the BCRA was confirmed with international banks for US $ 2,000th a SOF + 4.50%rate, which represents a contraction of 25 basic points with respect to the December 2024 operation, even in a context where the current country risk is 39 points above that moment. Finally, the Minister of Economy confirmed that the Treasury would be willing to buy dollars in the Mulc between the bands when it comes to block offers product of corporate debt emissions, provinces or large investments. It is important to clarify that it would not be the BCRA that would intervene in the exchange rate, but the national treasure who would buy the dollars using part of the weights that it has deposited either in the BCRA or in BNA.
Regarding the measures destined to strengthen control over monetary aggregatesthere were several announced. Perhaps the most relevant and surprising for us was the decision of Do not renew the Lefis after its expiration on July 17. These liquidity instruments allowed banks to administer their liquidity and guarantee a minimum yield for their surpluses of in line with the monetary policy rate, which will cease to exist completely to migrate to an aggregate administration scheme. In this scheme, the interest rate will be endogenous and the Central Bank would be limited to open market operations to administer aggregates or to provide liquidity to the banking system to disruptive events that require it. To do this, the Treasury will exchange the lefis that he has in Lecaps portfolio and, at the same time, he will commit to offers in its debt tenders biweekly short -term Lecaps to 1, 2 and 3 months. Likewise, it was announced that in the coming weeks the policy of lace in the deposits will be unified. Until now, common investment fund deposits suffered a lower lace than the rest of the system deposits, which allowed banks to pay more for their deposits and improve the performance of these investment vehicles. Finally, the issuance of the brand new Bopreal 4 for June 18 was also confirmed and the famous puts that the previous management had issued, allowing the Government to resume complete control over the monetary aggregates.
This battery of measures was well received by the market. The day following the ad the bonds in dollars rose 1.7% and the shares measured in dollars jumped 4.8%. However, the profits could not be consolidated in the following wheels, probably influenced by the increase in political uncertainty and the consequences that the ratification of Cristina Kirchner’s conviction could have on the opposition front.
But what do we wait forward? First of all, These measures believe that they will help underpin the country’s risk fall. While the departure of the CEPO, the agreement with the fund and the international support samples allowed to strengthen the macroeconomic program, the official commitment to wait for the exchange rate to touch the lower band to accumulate reservations did not convince economists or operators. The new possibility of accumulating reservations via debt issuance signed in dollars or through the opportunistic purchase of the block treasure would significantly improve the ability to accumulate reservations between bands; thus reducing the country’s risk premium. With the Bopreal, yielding between 5% and 8% and a possession of bonds in pesos by non -residents of historically low values, (EI to April the tenure was estimated at US $ 3,300 million compared to a peak of US $ 33,000 million achieved in 2018) we believe that the Government has good possibilities of achieving US $ 1,000 million per month it seeks. Likewise, this change of strategy indicates the commitment on the part of the administration of Javier Milei to seek to meet the objectives of accumulation of reserves agreed with the International Monetary Fund. It is that in the face of the impossibility of accumulating the necessary reserves for the goal of June 13 (US $ 4,000 million), the Government and the IMF have been left to postpone the review by the end of July instead of simply requesting a waiver until the next review.
For its part, The impact of these measures on the interest rate and the exchange rate is more ambiguous. The rise of lace for FCI would decrease the performance of Money Market funds. With liquidity against the expiration of the Lefis, banks may choose to buy more Lecaps, grant more credit or reduce their liabilities, any of which would reduce the interest rate. And the purchase of dollars from the treasure would have an expansive impact on the private M2, in case it is not sterilized with the open market operations of the BCRA. Therefore, these measures would indicate upward pressure in the FX and the decline in the interest rate. However, these effects could be compensated by the contractive effects of up to p $ 3.6 billion that would have a successful placement of the Bopreal Series 4. What keeps us skeptics about the government’s ability to issue the US $ 3,000 million it offers is the high exchange gap that the corporate investor should face to turn dollars abroad. It is that assuming a 10.5% yield in the secondary market of these bonds, their price would be around US $ 80.75, equivalent to an implicit cost of 24% for canceling the retained dividends.
To conclude, before the announced measures we reinforce our conviction that the Treasury dollars bonds still have a bullish tour. The government showed pragmatism by making more flexible position regarding the accumulation of reserves between bands, which should help compress the country risk and reopen the international debt markets to refinance maturity before expected. On the other hand, considering (i) that we are approaching periods of lower liquidation of the agriculture (II) that the typical dollarization of pre -electoral portfolio could be advanced with the eyes of the investors placed in the unfolding of the PBA elections and (iii) that some of the announced measures could press down the interest rate; We become more cautious about Carry Trade investments.
Research Asset Management from PPI
Source: Ambito
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.
