Public sector bond trading: keys to understanding what Sergio Massa is looking for and what the cons are

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Analysts are finishing up analyzing Economy Minister Sergio Massa’s latest gamble to contain finance dollars and access peso funding, announced on Tuesday.

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The decision for public entities – in practice the ANSeS – to exchange their global securities in dollars (of foreign law) with securities in pesos and to sell their LA in dollars on the market (regulated by local law) has several objectives, according to what they said in Economics.

The Equilibra consultant, from Martín Rapetti and Diego Bossio, made a first reading and highlighted four keys:

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The bonds are ANSeS holdings

The bond swap and sale applies to holdings of National State (AL, which are Local Law and GD, which are New York Law) dollar securities in the hands of non-financial National Public Sector (SPN) entities. In essence, it is the ANSeS Sustainability Guarantee Fund (FGS). That is, it does not apply to the Central Bank or Banco Nación.

Objective 1: Lower financial dollars

National public sector entities must sell their holdings of AL bonds (in dollars) through an agent designated by the Ministry of Economy. The purpose of this measure is increase the supply of dollar securities on the market and thus contain or lower alternative exchange rates (MEP and CCL), given the increasing dollarization of the private sector portfolio in an election year.

At Equilibra we value a dollar offering for these securities of approximately US$3,500 million.

Objective 2: finance the Treasury

Public sector entities must direct 70% of the proceeds from the sale of AL bonds to purchase new Treasury peso bills. This could give you net financing to the Treasury of just under a trillion pesos and, therefore, finance the primary deficit and reduce the issuance needs of the central bank.

Debt relief in dollars

Public sector entities will exchange their holdings of GD bonds for new peso bonds indexed to the CER or the official dollar (CER, dollar-link or dual). With this measure, one seeks reduce dollar debt New York law and/or possibly use those collateral bonds for a repo (dollar loans from banks to the National Treasury).

contain the gap

Measurements should help to contain the currency gap in moments of dollarization of private portfolios (in a context of lower dollar inflow due to the drought —which would reduce the liquidation of agrocurrency exports by US$ 19,000 million—) and, at the same time, to obtain net financing in pesos to transit i pre-election months, when the private sector is reluctant to provide finance in pesos.

The state borrows at 25%

According to Equilibra, the announcements reduce the risk of a jump in the exchange rate gap ea reprofiling of debt in pesos. It does at the cost of increasing dollar debt (Argentine law) with the private sector “releasing it” a a rate in dollars greater than 25%. This is offset — to what extent remains to be seen when the results are published — by swapping dollar bonds (New York Law) for index-linked peso bonds.

Source: Clarin

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