February was not a good month for public debt in dollars. The GD30, the “star” security used by the government to buy back debt, it’s already down 16% in the month and hit its lowest value from the maximum reached before Sergio Massa’s announcement. Last Friday it closed $31.47, below the US$34.66 recorded on Jan. 17 prior to the Economy Minister’s decision to bail out the bonds.
Massa’s plan was to acquire $1 billion to lower country risk, lower the cost of external financing and contain the race for the dollar. Since then, as confirmed by official sources, the Central Bank has set aside USD 520 million of its reserves for this purpose. The measure helped stabilize financial dollars in February, with the exchange rate gap narrowing to 90% in recent rounds, but it has not improved bond prices or country risk.
“Equities moved with volatility over the week and hard dollar stocks fell sharply on Thursday and Friday in tandem with global sovereign debt. Thus global bond prices are already below 15% below the high observed on the day of the bond buyback announcement At the same time, country risk has once again exceeded 2,000 basis points”observed a Delphos report.
On the other hand, the sharp decline in sovereign bonds encouraged by the rise in interest rates globally increases the cost of credit (Repo) negotiated with foreign banks by US$ 1,000 million up to two years. This financing requires the delivery of guarantee bonds by the Government, with the commitment to buy them back, but the fall in prices requires Argentina to guarantee more and more bonds.
“If the goal was to further raise hard dollar sovereign debt prices in order to be able to access a repo by providing a smaller amount of nominal collateral, this goal failed. Today prices are lower than before the debt repurchase and, therefore, if you wanted to access a repo by placing these securities as collateral the condition of the current repo is even worse than before the repurchase announcement“, said Juan Pablo Albornoz, economist at Invecq.
Against this adverse global backdrop, the government reduced the pace of bond purchases in February after the IMF condemned the use of reserves for this purpose earlier in the month and the almost immediate questioning of Together for Change for having considered a measure “improvised and doubtful”amid an exchange rate gap of around 90% and a shortage of dollars for the purchase of imported inputs.
The government, on the other hand, would have obtained debt savings in dollars. Although the GD30 expires in 2030, on July 9, 2024 it begins to amortize the capital and it is dollars that the Treasury will make to be the holder of the security. “If the goal was to improve the maturity profile of foreign currency debt, buy back debt at plus or minus 35 cents for every dollar you promise to pay in the future, debt buyback served its purpose,” said Albornoz .
The problem is that it is an improvement for the future which implies the current sacrifice of dollars in a delicate moment for the Central Bank. With a reduced supply from agriculture, it sold $470 million during the week and accumulates sales of more than 1,100 million US dollars in the year, showing the worst start since records were set in 2003. So, net reserves show a decline of more than US$4.8 billion for the year, according to the calculations of Ecolatina.
AQ
Source: Clarin
