STRATEGY
While economic activity data showed a slight recovery after a year of negative growth, the uncertainty regarding the presidential elections acts as the main driver for the prices of Argentine assets short term performance. Lower inflation expectations in June and for the coming months would be a positive driver, contributing to the recovery both at the economic level and the Argentine bonds’ risk profile.
Due to fact that the Central Banks's announcement about the possibility of greater intervention in the FX market, which has removed some uncertainty regarding the exchange rate, we maintain an overweight in domestic currency denominated securities, in order to increase the portfolio’s performance due to the high level of pesos denominated interest rates.
Regarding dollar denominated bonds, our suggestion is to maintain a position in those liquid and short-term, such as dollar denominated Bills, with a 4% yield and significant lower volatility than longer bonds. For more aggressive portfolios, longer bonds are attractive in light of a lower parity which would limit risk in a debt stress event. In addition, corporate bonds issued by companies with significant US dollars denominated revenues, such as Pan American Energy, Adecoagro and TGS, are attractive due to the fact that they are able to generate foreign currency to repay debt.
Outlook
The UST 10-year yield closed at 2.05% today. Up to two rate cuts are expected in 2019.
Highlights
-Performance: In terms of pesos, Argy bonds closed +1.45% on average last week, according to the IAMC Bond index.
-Global rates: The UST 10-year yield closed at 2.05% today.