Government auction: Over half of submitted bids centered on bonds maturing prior to the October elections
Unfiltered Finance: Argentine Bonds and the Dollar's Dominance
Investors are taking a cautious approach, particularly after the mid-term elections' line in the sand on October 17th. It seems the stock market and Treasury bond auctions have left a clear echo: risk is no longer a sought-after adventure.
Insight: The newest developments signal that investor interest in Argentine assets has escalated due to shifts in foreign exchange policies coupled with a more favorable economic landscape.
In the recent Treasury bond auction, $5.2 billion was captured from an offer of $5.6 billion, covering 70%. The remaining balance will come from funds the Treasury keeps at the Central Bank, which isn't a small sum.
Yesterday, the monetary authority sent $11.7 billion to the Treasury, a portion of the profits earned this year. These funds lessen pressure on the Treasury's upcoming maturities and empower it to contemplate attractive offers.
In the auction, LECAP, due to mature August 15th, grabbed $2.12 billion, accounting for 40% of what the Treasury captured. According to financial analyst Salvador Vitelli, this LECAP held a "2% premium," with the market yield of 36.9% compared to the 39.2% the Treasury paid yesterday. This was a different scenario for the remaining titles.
The other attractive asset was the fixed-rate BONCAP due October 17th and captured $1.06 billion, accounting for 21% of the total. From there on, none of the options surpassed the billion-peso mark. The most appealing bond in the second line was the BONCAP maturing January 30, 2024, garnering $906 million.
The dollar continued its ascendancy, with the Central Bank remaining on the sidelines, resulting in extreme financial dollar volatility. Financial dollars soared at one point during the day by up to 2.5%, only to subsequently retreat. The MEP dollar settled at $1.126.53 (+1.6%) and the cash with settlement (CCL) at $1.190.07 (+1.5%). The "blue" followed suit and increased by $15 to $1.225.
In the Free Market of Changes (MLC), trading volume saw a hike. USD 898 million was transacted. Although this amount isn't the highest for the year, it's worth noting that, previously, transactions were higher because the Central Bank was intervening in the market.
Insight: Imports' demand increased despite agriculture liquidating exports, causing the official dollar to surge by 1.7% to $1.190, narrowing the gap with the financial dollars to 2%.
In the local stock market, the Merval of leading stocks lost 0.3% in pesos and 0.7% in dollars. Both stocks and bonds reported a negative session. Stocks, nevertheless, had started the day with positive momentum, but enthusiasm abated, giving birth to profit-taking.
One of the best performers of the session was Loma Negra, which started the day up over 11% and ended with a gain of 3.6%. IRSA was another significant gainer, rising by 3%.
Untied States-China negotiations have yet to commence, causing the market to operate with caution. Silver linings include gold's recovery after two sessions of losses, advancing 2.04%, and the S&P 500’s impressive 2.03% surge and the Nasdaq of technology stocks' 2.74% increase.
Insight: With the US and China yet to initiate negotiations, routine volatility continues to prevail. Concurrently, gold and stocks have witnessed an upsurge together, reflecting uncertainty among investors.
Lastly, reserves increased by USD 415 million due to the increases in the euro, gold, and the yuan, as well as the growth of dollar deposits from private individuals.
Insight: Argentina's sovereign bonds enjoyed a good run, and several key bonds that gauge the country risk exhibited gains close to 1%. Concurrently, the country risk dropped by 7 points (-1%) to 713 basic points.
In conclusion, the mid-term elections appear to have incited cautiousness among investors, and rising insecurity with China's uncertain negotiations doesn't help. However, Argentina is experiencing an uptick in investor interest due to its easing of foreign exchange restrictions and an improved economic outlook.
- What risks does the Treasury face with the upcoming maturities, given the funds lessened from the proceeds of the Treasury bond auction?
- In the auction, what portion of the total funds captured was LECAP, due to mature on August 15th?
- What premium did the LECAP hold during the auction, according to financial analyst Salvador Vitelli?
- What was the total amount transacted in the Free Market of Changes (MLC) yesterday?
