The country risk continues to fall steadily and yesterday it pierced 2,350 points, reflecting a significant improvement in bond pricesthat they have already left behind the minimum that they had reached after the resignation of Martin Guzman to the Ministry of Economy. But within this climate of less financial stress, the interest of many investors in one of the papers recently issued by the Treasury stands out: the dual bonus.
This instrument was used for the exchange carried out by the Minister of Economy, Serge Massain order to clear the horizon of debt maturities. The focus was especially on September. But the issuance of this particular title allowed a strong subscription to be achieved, which in practice meant kicking forward about 2 billion pesos in local debt maturities. September looked like the most complex month with maturities that exceeded one trillion pesos, but after this transaction it was much clearer from a financial point of view.
The reason for the market’s interest in this title in particular is precisely that gives the possibility of betting on two “bands”: at maturity, the dual bond pays according to the adjustment of the CER accumulated during the period (that is, retail inflation) or the evolution of the wholesale exchange rate, depending on which has increased more. In this way, the risk is substantially limited, for example if a devaluation occurs or the Consumer Price Index shoots up even more.
The title was issued at three different terms: June, July and Septemberthe latter maturing after PASO, which was one of Massa’s objectives when he launched the swap.
The issuance of a dual bond was a key measure in the start of Massa’s management to clear the short-term financial horizon. Now it is a highly demanded instrument by mutual funds, but also by retail investors who prefer an alternative instrument to the dollar
The common investment funds that invest in pesos are one of the great applicants for this dual bond and a significant proportion incorporated it into their portfolios. In recent weeks, many retail investors have also emerged who preferred to bet on this bond instead of opting for dollarized instruments.. This also helped de-demand financial dollars and prevent the gap from skyrocketing. Yesterday there was a drop both in the “cash with settlement” to $302, while the MEP dollar ended at $287, about 3 pesos below the previous close.
The issuance of indexed debt of course does not solve the underlying problems, but it manages to remove the immediate danger. The accumulation of debt in pesos, however, continues to be the main challenge ahead. The fear of the opposition is that the “snowball” of debt in pesos will continue to grow at a strong rate.
The complication is twofold, because inflation skyrocketed, while the government refuses to move forward with a sharp devaluation of the official exchange rate. That implies that local currency debt is rising strongly in hard currency, but also in GDP terms.
Beyond the dual bond, which is mainly for domestic consumption, yesterday was a particularly positive day for dollarized bonds, which allowed a drop in country risk of more than 50 basis points. The rises that have been happening in recent weeks, accelerated notoriously yesterday. The AL29 and AL30 titles, the shortest that emerged from the debt swap carried out by Martín Guzmán in 2020, now again touched USD 25, leaving behind the USD 18 floors that reached when the financial crisis broke out. The increases ranged between 3% and 4%, which shows an interest that is reawakening also among foreign investorsbetting on more rational fiscal measures and a slow recovery of reserves.
On the other hand, the political noise generated by the request for 12 years in prison for Cristina Kirchner could also have had a favorable impact, since many are beginning to bet on a political replacement in next year’s presidential elections.