In the midst of renewed tensions on the exchange rate front, the Government came out this Wednesday with a battery of measures that aims to contain the gap. On the one hand, Economy Minister Sergio Massa announced before the markets opened that he would buy back dollar debt securities up to $1,000 million. Almost simultaneously, the Central Bank raised the premium for banks to issue passes, a measure aimed at discouraging dollarization.
“Improving the Debt Profile”
“We have seen a drop of a thousand points or more in country risk in Argentina and is a window. That is why we have decided today to start a process of repurchase of Argentina’s foreign debt worth more than one billion dollars,” Massa said.
From the lows reached in June and July of last year, dollar bonds have started to rise and he now racks up improvements of over 60% in four months. The country risk falls by more than 15% Only this year and yesterday the threshold of 1,900 units was broken again.
The high level of the JP Morgan banking indicator is what keeps Argentina excluded from international markets and is what explains, in part, the persistent lack of dollars in the country and the consequent tensions on exchange rates.
What are the bonds chosen and what was the first reaction of the market
This first phase consists of 1,000 million US dollars and will be focused on global bonds, in particular lshort-term ones; 2029, 2030.
The minister clarified that “this is where we must attack for the better management of Argentina’s debt profile and maturity profile.”
Quite, These are the two bonds that local investors use the most to carry out purchase and sale transactions which translates into MEP dollars and cash with settlement. Both quotations present a new and persistent buying tension which, according to market operators, has not yet been reflected in prices due to the continuous interventions of the official organizations which come out to sell at the end of the wheel.
Before the announcement, both the CCL and the MEP dollar rose 5.3% and 4.3% over the month. The gap with the wholesale dollarwhich closed just above $182 on Tuesday, it was 99%. However, it stretched more than the price of blue: in this case it reached 108%.
“The official argument is that it serves to improve the maturity profile, but it doesn’t seem logical to me: the country has much more imminent problems to deal with for something that will happen during the next legislature. So yes, it indirectly aims to reduce the gap” , said Francisco Mattig, of Consultatio.
Government, which has already given all the signs that it will not validate a discrete jump in the exchange rate – i.e. an adjustment of the distance “from the floor” – now try to contain the highest part of it.
The announcement caused hikes of up to 11% in the bond market. By midday these had moderated to 8%. This implies that the government “they will be more expensive” the bonds you intend to buy back.
Where will the dollars come from to pay investors?
mass said: “We made the decision in a joint resolution of the Ministry of Finance and the Treasury to entrust the Central Bank, for greater transparency, with carrying out this repurchase process on behalf of the Treasury”.
As far as Clarin knewthose dollars will not come directly from Central’s coffers, but will be “the Treasury’s own resources”. However, against a backdrop of declining reserves again and with dollar income at risk from drought in the countryside, this raises a red flag for market analysts.
Economist Martín Polo, from Cohen, explained: “The government is doing everything possible to contain the exchange rate gap and that the case does not trigger with the liquidation, intervening all that must intervene.
This, for Polo “In one respect it could be positive, but there are many dark spots.” Among them, he stressed that intervention in the bond market will cause “artificial prices”, in a context in which the dollarization demand and incentives remain intact.
“In the short term it can generate a containment effect, but in the general picture of Argentina it remains unknown where the dollars will come from. The country has a very low level of reserves which forces it to carry out exchange controls, which is what it ultimately triggers the divide,” he said.
Central debt, more expensive
Almost immediately after the announcement, The Central Bank has told the market that the “premium” paid for the day pass will increase by 200 points. These are very short-term instruments in which banks invest in order not to lose liquidity.
“The 1 business day reverse repo rate is 72% while for 1 business day reverse transactions it is 97%,” said the agency, which increased this yield to ensure that entities keep their placements of pesos and prevent surpluses from going to the foreign exchange market.
“that combinationto buy back dollar bonds and raise the peso switch rate, should drive bonds higher in dollars than in pesos”, They explained this in an official dispatch.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.