The Central Bank of the Argentine Republic from December 7, 2023 to date showed an increase in reserves of 41.6%. It must be taken into account that at the end of the month it will make a payment to the IMF that will once again place it below the psychological barrier of 30 billion dollars.
During May, the income from the soybean and corn harvest should strongly push the rise in reserves, crop harvesting problems linked to the weather and logistics have delayed the arrival of merchandise at the port. Only at the end of May will we know if the farmer is willing to retain merchandise or sell. Shortly, wheat sowing should begin, where numbers have begun to close; However, the area to be planted could fall by 5%, according to data from the Rosario Stock Exchange.
Regarding the liabilities of the Central Bank, the monetary circulation grew 30.5%, while inflation measured in the same period could be around 100% (we do not have April inflation yet), the wholesale dollar in the same period increased 139.6%. In real terms, the amount of currency fell sharply and if we measure it in dollars, much more. The monetary circulation measured in dollars as of December 7 was US$18,001 million, currently it is US$9,805 million.
The smaller number of bills helped the fall of alternative dollars. Clearly, whoever bet on the dollar lost, and this generates a poverty effect in the population, which is estimated to have a stock of dollars close to US$200,000 million, of which some US$80,000 million coexist in an informal market.
Central Bank pesos and other results
Reserve reserves rose 34.1%, not a significant increase, which reflects that there was no explosion of growth in bank deposits.
The liabilities in dollars show a strong rise, firstly, due to the devaluation of the peso; Secondly, due to the placement of the bonus for Bopreal importers, this contributed more reserves to the Central Bank, but also liabilities. It is expected that a new Bopreal bond will be placed for those who want to remit profits and dividends abroad, an estimated US$4 billion. In dollar terms, the Central Bank’s liabilities went from US$5,051 million to US$9,058 million, Bopreales were placed, but debts in Levid were cancelled.
Liabilities in the BCRA rose 54%, almost half of inflation.
The Central Bank’s liabilities in pesos rose 54.2% in the period analyzed, almost half that of inflation, and here the blender effect operated: they are adjusted for negative interest rates against inflation. Currently the monetary policy rate is 60% annually, which implies a monthly rate of 5.0% while inflation almost doubles this interest rate level.
The treasury has issued bonds to entice banks to convert from Central Bank bills to longer-term bonds, trying to show an improvement in the Central Bank’s capitalization, reducing its liabilities and increasing reserves.
What about bonuses?
This week we have observed in the market a sharp decline in bonds in pesos adjusted for inflation. To give just two examples, the TX26 bond fell 11% and the TX28, 13.8% from their highs. The decline in these titles is because the market is pricing in a sharp drop in inflation levels.
Both titles show negative rates of return of 1.2% and 3.4% annually, in both cases the expected inflation minus this rate of return would give us an interest rate higher than the fixed-term rate and the rate of devaluation of the peso. , so these bonds remain very attractive despite the decline in recent days.
He TX28 has risen 116.8% since Javier Milei took office which, compared to a 3% rise in the MEP dollar, leaves a spectacular dollar gain. Similar is the case of the TX26, which rose 101.5%. There is no doubt that both securities protected against inflation and left large dollar gains. Therefore, holders of both securities may disregard the decline in recent days.
The decline in titles is because the market is discounting a sharp drop in inflation levels in the Milei era.
In parallel with the decline in inflation-adjusted bonds, we see that sovereign bonds are at maximum levels: The AL30 closed at 58.17, the Friday before the inauguration of Javier Milei they were trading at US$37.15, which reflects an increase of 56.6% in dollars. The arbitrage of short bonds for longer titles seeking a greater amount of nominal It can be a good exercise to seek to enhance future profits.
Investments in May: bonds will continue to be business
There are three important issues: first, the Central Bank substantially improved its balance sheet, but there is still a way to go. The scarce monetary issue, the more stable dollar and rates like the Baldar that went from 130% to 50% annually show a substantial change in the monetary and exchange scenario. The monetary policy rate that remunerates the Central Bank’s liabilities in pesos fell from 133% to 60% annually.
In second place, We do not see the possibility that under the current scheme we will have an upward trend in the dollar. It would give the impression that the wholesale dollar will continue adjusting at a rate of 2.2% monthly; The implicit rate of the future dollar is located at 57.5% annually, so we do not expect any surprises on this side.
Regarding the dollar bill, the recession would assure us that any rise will be a sales opportunity. The economic agents are “deplatformed” and they will have to resort to their savings in hard currency to balance their accounts.
The promise of the National Government to honor the debts, the payment of interest and amortization of the Sovereign bonds in dollars on July 9 will continue to push these securities higher, with a price horizon around US$70 in the case of the shortest bonds.
Regarding the bonds in pesos adjusted for inflation, continue to be a very good optiondespite expectations of lower inflation.
