Why pesos bonds have dropped so much this week and what can happen

Over the past few decades, we have heard countless economists and policy advisers discussing the debt issue trying to convince the rest of society that this “The debt in pesos and, above all, the intra-public debt, are not a problem”. Beyond the fact that this statement seems to make economic sense, it implicitly protects two truths which are very serious.

First, that the debt in the hands of public bodies can be easily restructured at conditions that are not very favorable for the creditoras could be the case with bonds in the FGS portfolio.

Second, that the burden of debt on the public coffers when issued in national currency may decrease as inflation consumes the value of money (i.e., you can go “liquefied”).

Without going into the negative impact that this government approach could have on the last remaining bond holders, the Argentine bond market has shown in the last month of danger that contains this half truth.

Since the beginning of May, the public securities issued in pesos and which adjust their capital to the CER index of the retail price, have suffered a severe loss worth. Just to name a few examples, over the past month the TX23 has lost 2.1% of the market value while the TX24 has suffered a decrease of 1.43%. This loss, which began to be reflected in May, was so accentuated in June, where the bonds with the highest volume have so far been expressed. losses greater than 8%as in the case of the aforementioned TX23.

Why the bonds fell

When we go into detail on this steep decline in bonds hedging the high-inflation investor, we find that it is mainly driven by issuance of this type of bonds by major investment funds from the country.

The fund’s portfolio managers contributed the most volume to trading these assets strongly increasing supply and causing a significant drop in prices.

Therefore, so far this month, the sale of these fixed income instruments by portfolios of funds, equal to $ 30.40 million. These landslides favored a worsening of the fall in the prices of this type of index-linked securities, aggravating the scenario that began to be observed in May.

In particular, 30.77% of the total volume traded since the release of the portfolio of funds of this type of bond was achieved on June 8. from the Pellegrini funds. These funds are managed by part of the Bank of the Argentine Nation.

It should be noted that, at this time, the index-linked public debt represents approximately 79.3% of the total of the pesos debt, one of its main holders is ANSES. When we look at the composition of the FGS portfolio, we find it over 70% is placed in public debt securities, and that of that percentage nearly 70% in index-linked bonds.

Where do all those pesos go?

A valid question to ask is where can all this money go, considering this only a percentage was reinvested by money market funds. Without a doubt, the alternative that is more important and looks more temptinga is the MEP dollar or CCL (counted with cash). Considering the sharp rise in the price index in recent months and that at the same time the exchange rate traded on the stock exchange has remained almost stable, the exchange delay becomes evident which makes it an investment alternative.

It is to be expected, therefore, that if the Central Bank does not intervene in the market by raising the interest rate to absorb some of this spilling of portfolios, the increase in the exchange rate far exceeds the highs reached during the year.

A final and more troubling question is what will the treasure be like national during this month and the following to renew the debt stock in LECER following this collapse in prices, as these stocks represented a total stock of approximately $ 583.6 billion in April and May.

Therefore, these events don’t just come back The government’s position on pesos debt is very delicatebut refutes the initial claim that the pesos debt is not important.

* Ignacio Zorzoli is Chief Financial Officer of the Center for Economic Studies Argentina XXI (CEEAXXI)

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