The repurchase of Economy bonds generated new business opportunities and a sharp drop in country risk

Stock Photo – Facade of the Ministry of Economy of Argentina, in Buenos Aires. June 18, 2014. REUTERS/Enrique Marcarian

The repurchase of bonds that the Ministry of Economy began a week ago seems to have established a floor and a ceiling. On the one hand, the acquisition of public securities provides a support base for their prices in the market, which have already had a strong rise in recent weeks. And, on the other hand, it puts a cap on country risk, which in the last week fell 5 percent.

Debt repurchase: the Government began to receive information from brokerage firms to investigate the rise in the dollar

The first stockbrokers went through the CNV this Thursday to explain movements in their accounts during the days prior to the announcement of the Economy. The agency detected an operating peak with the dollar Stock Market that it will also investigate

For analysts, the measure implies a “short-term” calming tool that will also work to give a minimum to the prices of dollar securities, which were very depressed but have grown since last December.

An IEB Research report this Thursday stated that “since the announcement of the start of the debt buyback program, it is estimated that the government has used close to USD 260 million for said program. The result of this has been bond prices reacting positively and financial FXs under some control,” he considered.

On this level, they affirmed that “the repurchase of bonds can generate a certain contention avoiding runs on financial dollars (when it ends with a sale operation of those bonds in pesos against a public body)”, although they also pointed out that “it is difficult to To think that this is a solution that lasts over time is a palliative that brings ‘calm’ in the short term. It will be interesting to see what will happen once the operation is over,” they concluded.

Bonds on the rise: despite the repurchase plan, the market sees them very close to a ceiling

Global markets remain very positive and help local debt securities. However, electoral uncertainty will begin to have more weight in investment decisions

From Adcap Grupo Financiero, for their part, they calculated that at the beginning of the week the Central Bank had already bought “some 315 million GD30 bonds, where we see the most marked intervention of the BCRA.”

“Massa continues to pull rabbits out of the hat, and the repurchase of bonds was another card in the wide deck that the minister handles. Behind this purchase of debt, the market wondered if it is a high or low level of 36 dollars (the price at which the monetary authority bought bonds). And the truth is that it seemed more like the ceiling than the floor, and the positive thing would have been to give certainty to the market by marking the floor, ”he mentioned in a report to clients.

“Massa continues to pull rabbits out of the hat, and the repurchase of bonds was another card in the wide deck that the minister handles” (Adcap)

The truth is that, he added, “it is a mistake to think of $36 and say that it is high in absolute terms. The important thing is that in terms of sovereign bonds, we are not going to return to the floors of 20 dollars. A reasonable range would be $30-$36 for the 2030 bond.”

Massa already has agreed loans with three foreign entities to expand the debt buyback program

On Friday, longer-term bonds were also included in the plan, not only Global 2030. The objective is to achieve greater firepower without using reserves. There would be a sovereign fund among those who would contribute fresh dollars

“Is Argentina going to break the ceiling on sovereign bonds?” asked AdCap Grupo Financiero, founded by Javier Timerman. “The underlying risks, that is, the shortage of reserves and access to credit, remain. But political stability, or a moderate transition at the political level, could cause that ceiling to break, ”he anticipated.

For the consulting firm Sarandí, for its part, with the announcement of the bond repurchase “the Executive gains firepower to face upward pressures in the dollar financial markets. It also gives a sign of adequacy in the external position, which can mean a new boost in the prices of Argentine assets”, he considered.

“The connection with other macro variables such as the interest rate and inflation is more diffuse. At the margin there could be an improvement in the general economic climate and serve as an anchor for expectations. At the moment it does not seem obvious, ”she remarked, anyway.

The country risk had a drop of approximately 5% since the bond repurchase announcement. It went from 1,938 points last Wednesday to 1,846 units. The drop is, in any case, sustained since October, when it had reached a ceiling of 2,800 points. The fall has accelerated since December when the market already began to acquire more Argentine sovereign bonds in foreign currency.

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