Debt: Luis Caputo carries out a new tender amid the boom in peso securities

The Ministry of Economy will hold a new debt tender in pesos this Tuesdaythe last one in October. The auction takes place in the context of a strong rally in local currency securitiesboth indexed and those that pay a fixed rate. Movements in the secondary market respond to cut in investors’ inflation expectations and to the design of the menu of instruments to be placed that the team of Luis Caputoin which did not offer either Lecap or Boncap and only included bonds that adjust for CER.

In this tender, the Secretariat of Finance faces maturities of around $1.6 trilliona much smaller amount than in previous placements. The officials decided to take advantage of this situation to, through the design of the offer of titles in pesos, send a signal to investors: look for promote the reduction of implicit inflation expectations in financial assets, which had begun to be reflected in secondary market prices in recent weeks.

The decision of the Treasury Palace was reflected in the call for tender published last Friday after the close of stock market operations. Over there, Pablo Quirno and his team from the Ministry of Finance surprised the city with a menu that It only included four inflation-adjustable bonds (CER) with maturities between 2025 and 2026. The surprise was that there were neither capitalizable fixed-rate bills nor bonds (Lecap and Boncap, respectively), which had been in high demand in the previous rounds.

Debt: the market’s response to the Finance menu

If in recent weeks the Lecap (especially the longer ones) and the Boncap had already operated with strong increases, The market reaction after the call for tenders consisted of an intensification of the rally of these titles during Monday’s round. The mere inclusion of Boncer “could have generated feeling of ‘scarcity’, leading the market to demand more papers at a fixed rate,” said Juan Manuel Franco, chief economist of the SBS Group.

“The longest fixed rate instruments soared: Lecap maturing in August-September 2025 increased 2.2%/3%while the Boncaps did the same at 2.6%/3%. Thus, the TEM (monthly effective rates) of the longest section of the curve compressed 20 basis points and were located in the range of 3.1%/3.2%, pronouncing the negative slope of the curve even more”described Personal Investment Portfolio (PPI) in a report for your clients.

This pronounced negative slope of the fixed rate yield curve reflects that the market bought the Government’s message: that the slowdown in inflation will continue its course and that, therefore, rates will tend to fall in the future. Faced with these expectations (whether optimistic or not), investors demand more longer securities to fix a yield at current values ​​for longer under the presumption that they could continue to decline in the coming months. Thus, the shorter bills pay higher rates than the longer Lecap or Boncap, giving rise to the inversion of the curve.

Tender: expectation for cutting rates

But the market reaction did not stop there. The jump in the prices of the Lecap and the Boncap had left the Boncer out of date (tied to inflation), with returns that the Government would hardly validate, which sparked greater demand.

“In this context, CER bonds rebounded along the entire curve by an average of 1.4% (this Monday). This performance in the secondary market could indicate that the market does not see that the Ministry of Economy is going to validate the current rates of the CER curve in the tender,” the PPI report noted. Thus, they closed yesterday with real returns of between 10% and 12% in the short section.

In this way, “despite the compression of yields in the CER curve, the “Breakeven inflation again compressed marginally and stood at 2.1% for the average of the next 12 months”PPI calculated. This indicates that implicit inflation expectations in financial assets were reduced to levels much lower than those indicated in the latest Market Expectations Survey (REM) of the Central Bank (carried out at the end of September and published at the beginning of October). which projected an oscillating path for the CPI in a range of between 3.6% and 3% between now and March 2025. The Government celebrated it.

Yet, This Tuesday, both fixed-rate and inflation-indexed securities continue with significant increases in the secondary market. The Boncers for 2025 and 2026 rise between 0.4% and 1.4%, while the long Lecaps advance up to 1.6% and the Boncaps climb up to 2.1%.

“We are waiting for the cut-off rates of today’s tender, mainly to see if the Treasury seeks on this occasion to give some type of signal in relation to the real rate,” said the SBS Group in its daily report.

The Four titles that investors can subscribe to in this Tuesday’s auction are different from Boncer. Three new bonds will be launched: one in May 2025, another in October of next year and another in October 2026. In addition, the Boncer will be reopened in March 2026. All are auctioned by price (which will be defined in the placement) and They pay 0% coupon.