Dollar: due to the growing expectation of an exchange rate jump, the demand for coverage skyrocketed

The demand for hedging instruments against a possible devaluation jump of the peso shot up in the last month. It grew, they agree in describing it in the market, at the same rate as the difficulties that the Central Bank (BCRA) was showing to recompose its holding of its own reserves and in the face of the push that each new restriction imposed on access to the official market gave the exchange gap.

And it did so fueled by the liquidity that was released precisely by that entity, when launching in June to a massive rescue of bonds with adjustable capital by CER, a task for which injected more than $1.1 billion before the run unleashed for fear of a possible upcoming restructuring of a liability which, due to the sustained inflationary acceleration, is already growing by some $20,000 million per day.

Analysts and operators explain that the market turnaround responds to the marked deterioration in expectations. And the numbers are conclusive. “The volume traded with dollar futures continues to rise and, for example, there is a sustained arbitrage of common funds (FCI) that invest in CER bonds towards others that invest in instruments pegged dollar. What is noticeable is that the entire market is looking for foreign exchange coverage”, explains Cristhian Reos, from Allaria Ledesma.

“The vortex of the dollar had repercussions on the demand for instruments that adjust for the variation in the official exchange rate, contrasting with the still fragile demand for assets bound to inflation. In the FCI industry, for example, in the last seven days we were able to observe a level of net subscriptions to funds pegged to the dollar for $39.6 billion, while CER [atados a la inflación] they accumulated bailouts of $12,000 million in the same period. So far in July, in turn, the former register net subscriptions of $54,000 million, while the CER segment had net redemptions of $100,000 million, as doubts about these instruments continue”, agreed to point out Damián Koltan, CEO of Adcap Asset Management.

On the rise again

Data from Matba/Rofex, the most active financial derivatives market in the country, show that the demand for this type of coverage doubled in the last 30 days. The so-called “open interest”, which is nothing more than the total number of futures contracts agreed (one of the key indicators of liquidity and the critical mass of the market) went from an equivalent of US$3,365,285 million, at the beginning June, to another of $6,591,369 million, yesterday. And we must not remember that it is a place that, in these circumstances, usually stays with a single supplier.

A story that repeats itself and repeats itself
A story that repeats itself and repeats itself

The economist Fernando Camusso, director of Rafaela Capital, explains the market’s transmission mechanisms: “Once all the possibilities of buying assets that arbitrate for the cash with liquidation (CCL) are closed, the run drifts towards paper pegged dollar. And obviously if as an FCI you receive strong subscriptions, you have to go to Rofex yes or yes: then the prices and -consequently- the futures rates fly”, he points out, referring to implicit yields that reached between 128% and 144.2% (annual effective rate) for the August and September maturities in recent days.

They are rates that only eased somewhat yesterday, which would be indicating an intensification of the BCRA on that market, which comes at a time when its position would already be around US$8 billion between Rofex and MAE (market through which the banks operate), barely US$1 billion below the position limit imposed by the agreement with the IMF in dollar futures.

The table is completed with sustained increases that show the bonds that adjust for the official dollar. “They have been having very positive days, with rises that reached 10% in the week,” Koltan notes.

For the economist Nery Persichini, from GMA Capital, the current currency crisis “has a high component of political uncertainty.” This leads companies and investors to look for ways to protect themselves, but it is not easy, because the costs of coverage have skyrocketed.

Boom, up demand for dollar-adjustable bonds
Boom, up demand for dollar-adjustable bonds

In the market there is a lack of instruments to absorb the pesos of the companies that have to get rid of positions they had in Cedears. For this reason, the rates of the official exchange rate futures increased significantly to the zone of 130% and 140% annualized, a threshold higher than the peak observed during the exchange run of October 2020. Simultaneously, the bonds pegged dollar they were highly demanded and their prices increased 11% in the last six rounds, far exceeding the performance of the rest of the alternatives in pesos. As a consequence, there was a marked compression of yields, so that the T2V2 (expires on November 30) yields -17% and the TV23 (April 28, 2021) -11%”, he indicates.

Esteban Gette, Cohen’s strategist, understands the forecasts made by the market and shares them. “One of the variables that worries him the most is the availability of reserves, which deteriorates day by day, among other things, due to the dynamics of BCRA interventions on the foreign exchange market. With less availability of reserves, the chances of the monetary entity to contain the rate of devaluation to 4% per month, as it did in May and June, are diminishing. In fact, in the last week we saw the rate of devaluation travel to 90% annualized, equivalent to a monthly devaluation of more than 5%. And no one escapes the fact that the situation could deepen if we take into account that the income of foreign currency in the second half of the year is notably less than the first”points out, referring to the complete combo that encourages these expectations.

The most incomprehensible part of the case is that the Government does nothing to try to reorder them and even lets possible measures that discourage the supply of foreign currency be disclosed in advance while waiting for them to materialize.

All this in the middle of a Inflation that does not stop growing with an exchange rate gap at levels similar to that prior to the “Rodrigazo” and with the dollar on the rise throughout the world, as the Federal Reserve persists in raising rates to try to placate its inflation. As for there is no demand for protection mechanisms.

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