New distortion in the debt market in pesos: the State is its main creditor

Archive photograph in which the frontispiece of the headquarters of the Ministry of Economy of Argentina, in Buenos Aires (Argentina), was registered. EFE/David Fernandez

Since the departure of investors from debt securities in pesos began at the end of May and, particularly, as of June 8, when the run against these bonds began, the Argentine economy added a new distortion that, like many of those already in force, can provide a short-term benefit. By dint of an unprecedented intervention by the Central Bank, which required a mega-issuance of $1.3 trillion to support the prices of titles in pesos, the State became its main creditor in this type of debt.

More than half of the debt in pesos that matures until the end of the year is now in the hands of official organizations.s, according to the latest public information from the Ministry of Finance, which indicates that 49% of the bonds in pesos are in the portfolios of private creditors while the remaining 51% are held by official entities.

However, updated calculations by private consultants indicate that barely 35% of the total bonds in pesos in any of their variants ~fixed rate, variable rate, adjusted by CER and pegged dollar– maturing in December 2022 are in private hands while the rest is distributed among different state departments, among which the Central Bank acquired a leading role, in addition to a millionaire holding of Treasury bonds that deteriorate its balance.

Thus, of the total maturities of 3.7 trillion until December, about $2.4 trillion are in the hands of official bodies while just over $1.3 trillion is in private hands. Although it is an anomaly that reveals the lack of genuine credit for the State, this composition implies an improvement in the maturity profile. This is because it drastically reduces the risk in renewals since the participation of public entities in the tenders aimed at refinancing the debt is discounted. In the specific case of the Central Bank, meanwhile, it is necessary to implement swap operations since the monetary authority cannot participate in the primary placement of securities, but it can participate in operations that involve turning over the bonds acquired in the secondary market.

“Until the end of May, when investors began to get rid of the titles in pesos, the relationship between private and public holdings of the debt in pesos was 60%-40%, in favor of the private. Now, since the strong intervention of the Central Bank in recent weeks, that relationship has been reversed,” he explained. Federico Furiasefrom the consulting firm Anker, who explained that this ratio is the average for the next twelve months. In the short term, the difference is accentuated: for example, the super maturity of more than $1 trillion next September ceased to be a problem for the finance team of the Minister of Economy, Silvina Batakissince barely 20% of the total is in the portfolio of private investors, mostly regulated such as banks.

“This implies an improvement in the maturity profile. In that sense, the Central Bank acted well, it rebuilt the debt curve in pesos, although at a very high cost that must now be resolved”, added Furiase. In this sense, the high issuance that is later sterilized via Leliqs, with the counterpart of the accumulation of Treasury securities instead of reserves, implies an enormous deterioration of the BCRA’s balance sheet and is a central element that puts pressure on the need to reduce the deficit. and face a correction of the exchange rate within the framework of a plan.

“At the end of the day, for that to work there has to be a consistent plan where you can incentivize the income of dollars. For that, at this point, an improvement in the exchange rate and an interest rate that is above the rate of devaluation is needed. Today you have the drag pin (staggered devaluation of the dollar) at 5.5% per month, above the interest rate, which in turn is below inflation,” said the Anker economist.

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