The strong strain that the financial market went through this week did not exempt the quotes from the debt in pesos of the Treasury. There was selling wave also in that segment, particularly in medium and long duration fixed rate bills (LECAP). This coincided with the ratification of a diagnosis by City analysts: the slowdown in inflation found a floor which will be difficult to drill and the possibility of a rebound in June is beginning to appear. This whole picture added up pressure on rates of interest in pesos in the secondary market, just on the eve of a new tender of the Ministry of Economy in which it must renew $5.2 billion.
The shock of recent days reflected the impatience that is beginning to prevail among investors in the face of the difficulties that the Government faces at the political level and the doubts that emerge about the limits faced by the economic team’s plans in fiscal, financial and, above all, everything, currency.
“The market was too optimistic, thinking that this will be fixed quickly. Now you see that the weights of the disarmament of the passes end up in short Treasury debt, that it is difficult to add reserves, that inflation is bottoming out, that there are political tensions, and then the questions appear,” an experienced economist from the City.
In the case of debt in pesos, this translated into significant declines in Treasury securities. The falls occurred in most bonds, but were concentrated especially in the LECAP of the medium and long section, which had daily drops of up to 4% on Thursday in some letters in particular. The SBS Group pointed out that the LECAP found a floor on Friday and closed with average increases of 0.4% in the short section and 1% in the longest section, although the latter accumulated drops of 4% in the week.
The effect was a considerable rise in interest rates in the secondary market. The economist Amílcar Collante compared the annual effective yields at the close of this Thursday with those of May 21, just two weeks ago: for example, the shorter LECAP that expires on June 14 went from yielding 40.58% to 47.4% In that period, the LECAP as of November went from 45.18% to 69.53% and the longest one, which expires in March, from 42.84% to 71.83%.
The question that is being asked in the market is whether this increase will have a correlation in the next Economy tender. Although the offer from the Treasury Palace in the last auctions was concentrated in short LECAP, which fell less than the long ones, within the framework of the strategy of migrating the banks’ holdings from Central Bank debt to Treasury debt.
For now, this Monday the conditions of the call for bids for Wednesday will be announced. Over there, Luis Caputo will face the expiration of a LECAP for $5.2 billion. Therefore, if you want to continue promoting the dismantling of the stock of repos and their replacement with Treasury debt, you will have to go in search of a larger amount. Thus, one of the issues to monitor is whether maximum placement amounts and minimum rates are set again, as in the last auctions.
For now, the official strategy became a strong reduction of the stock of remunerated liabilities of the BCRA, which is considered by Javier Milei as a key step for the lifting of the exchange rate. However, as Ámbito said, the correlation was a weakening of the Treasury’s financial position since the debt migrated from one part of the public sector to another: Economía carried out a record issuance of securities in May equivalent to 3.4% of GDP and short-term maturities increased, with a weighted average duration of just 1.3 months in the last auction. For this reason, different voices questioned whether this path implies an improvement in the situation in view of the opening of the stocks.
Inflation: the deceleration stops and they begin to look at indexed debt
Meanwhile, the latest Market Expectations Survey (REM) of the BCRA, published this Thursday, confirmed that the City’s consensus accompanies a scenario that some consulting firms had already begun to point out: that the slowdown in inflation has stopped and could remain above 5% monthly at least for the next four months. Furthermore, despite the fact that the survey was prior to the officialization of the new increase in electricity and gas rates, the average projection of those surveyed by the Central was that of a rebound in the CPI in June to 5.5% (from 5. .2% expected for May).
In principle, after the movements of the last week, the curves of CER securities (indexed to inflation) and fixed rate bills show that the secondary market aligned with that perspective. “Prices have an implicit inflation path of 5.0% on average until the end of the year,” said a Cohen report.
All this, added to the financial tensions of recent days, could have contributed to the sharp falls in the long section of the LECAP. “With high frequency data that continues to show how difficult it is to break through 1% weekly inflation (the increase in electricity and gas rates in June will not help either and perhaps we will have the first month without a drop in monthly inflation) and with supply in the primary market for short instruments, unless the financial strategy of the Ministry of Economy changes, The market does not find reasons to extend the duration to set the rate until the end of the year. “We share that vision of consensus,” stated the consultant 1816 in its latest report.
In this framework and after the shock that the Argentine assets suffered, There are those who are beginning to look again at coverage options with indexed debt. In a report to his clients, the SBS Group considered: “Given that we are still waiting for stronger signals to think about sustainable macro normalization, we believe that Caution should prevail in terms of investment. With respect to investments in pesos, we believe that the inflation breakevens between LECAP-CER are somewhat optimistic, and we prefer positions that hedge against inflation in a framework in which there is still work to be done in terms of regulated prices.
