Instruments to invest pesos in the era of high rates

Last week both the Treasury and the Central Bank raised interest rates sharply, thus initiating a new era

By christian a. butler

01/08/2022 – 11:00 a.m.


July ended, the month in which we had 3 Ministers of Economy, Martin Guzman, Silvina Batakis and Sergio Massafree dollars that rose between 13% and 24% but managed to climb 40%, bonds in dollars that seemed to find no floor with falls of 18% and that end up rising 7%, the Treasury paying rates of 97% TEA in a new auction of bonds in pesos, a Central Bank that raises the monetary policy rate by 8 percentage points and shares that earn 38% in pesos and 21% in dollars. We also had greater restrictions to operate with dollars and an inflationary acceleration that will surely leave us with the month with the highest price increase of the year. All this in just 30 days.

July has been a clear demonstration of the depth of the crisis that the country is going through, which is not only economic but also political. And to face it from the monetary point of view, a strong increase in interest rates is resorted to by the Treasury and the BCRA. It is important to clarify that this increase in cost of moneywhich will have an impact not only on the value of the dollar but also on activity, is a consequence of monetary errors and excess issuance of previous months.

In this way days ago the BCRA announced an interest rate corridor where the ceiling will be set by the Treasury rate in its tendersIt is a correct measure given that it is the government that needs financing to solve its fiscal deficit. It is necessary that this financing comes from the market to reduce to the minimum possible the issuance of pesos by the BCRA for that reason, which then ends up causing inflation.

Therefore, in last week’s tender, the Treasury validated a rate of 70% TNA (97% TEA), thus leading the positive market rate. With this rate, a roll over of the government debt of 194% was achieved, really an excellent result considering the moment of financial uncertainty that we are experiencing. Of course, this has a cost and it will be the increase in interest payments that the government will have to face in the future.

    days ago the BCRA announced an interest rate corridor where the ceiling will be set by the Treasury rate in its tenders

The BCRA announced an interest rate corridor where the ceiling will be set by the Treasury rate in its tenders

Investments: the era of high rates

But in a context of accelerated inflation like the one we are experiencing, the BCRA cannot forget about depositors and thus decided on Thursday to also raise the economic policy rate from 52% to 60% TNA (79.8% TEA) together with the minimum fixed term rate of 61% TNA (81.3% TEA) for deposits up to $10,000,000.

These rate hikes had an impact on the market where free dollars were seen to stop rising and end with a $30/$40 drop for the week, although still showing a pre-crisis price increase of almost $100.

But every rate hike works in two directionsOn the one hand, we see that depositors receive better remuneration for staying in local currency, but on the other hand, all types of financing become more expensive and this also ends up having repercussions on the level of activity. A fact that could affect the future performance of the shares, although in the last week they also celebrated the exchange rate calm achieved, ending with an increase of 7.6%.

In last week’s column we discussed that the time seemed to have passed for buy dollarsWell, now with this rise in rates, control of the issue through, it should bring even more peace of mind on the exchange rate and as we mentioned in the previous paragraph it could also have an impact on the price of the shares, so we believe that it will be the moment of kingdom of the rates. At least in the short term and always attentive to the measures that the new economic team can offer.

However, Are these traditional fixed term rates preferable to instruments that adjust for inflation (UVA fixed term, bonds and bills with CER)? Unfortunately the answer is no, at least in the coming months. The acceleration of inflation that we saw in July will surely give the highest rate of the year and will cause a drag for August which, together with the increases already programmed, will also have high inflation. Therefore, when choosing instruments in pesos, we continue to prioritize the latter. Thus, a conservative investor has the option of fixed-term UVA and mutual funds that invest in these instruments, while the riskiest have from very short-term letters to bonds with maturities in 2024 and 2025 that yield CER + 10 points.

are moments of a lot of volatility for investments and we must try to protect our capital in the best possible way. I’ll wait for you next week.

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