In the midst of renewed tensions on the exchange rate front, the Government He came out on Wednesday with a series of measures aimed at narrowing the gap and cooling inflation expectations, which rebounded in January, together with the tension on exchange rates..
In this sense, the Minister of Economy, Sergio Massa, has announced that he will buy back debt securities in dollars up to 1,000 million dollars. Almost simultaneously, the Central Bank announced that it will pay higher fees to banks for issuing passes, a measure that aims to remove pesos from circulation and discourage dollarization.
“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 19% Just this year and after the announcement, the 1,800-unit mark plummeted 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.
This first phase consists of 1,000 million dollars and will have a particular focus on global bonds those that expire in 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 upward push which, according to market operators, has not yet been reflected in prices following continuous interventions by official organizations who come out to sell at the end of the wheel.
“The official argument is that it serves to improve the maturity profile, but that doesn’t seem logical: the country has much more imminent problems to deal with something that will happen during the next term. So yeah, it indirectly points to fill 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 -that is an adjustment of the distance “from the floor”-, now try to contain the highest part.
Since the announcement, the bonds are up more than 6%. This implies that the government will “find it more expensive” for the bonds it intends to buy back.
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 he could tell Clarín, those dollars will not come directly from Central Bank 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.
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.
Source: Clarin
