STRATEGY
From an economic point of view, the economic data allows us to think about a recovery start after a year of slowdown, while in the short term the main driver of the Argentine assets will be the presidential elections, and mainly the difference between Macri and Fernandez in the primary elections. The expectation of lower inflation for the upcoming months would accentuate the recovery both in economic terms and in the risk profile of Argentine bonds.
Regarding the weighting between assets in dollars and in pesos, we consider that after BCRA’s announcement of the new Leliq rate floor at 58% the high real rates in pesos would last in the medium term. In this sense, we maintain a portfolio allocation with a larger weight in local currency. As for assets in pesos, we favor Lecaps, in the middle part of the curve, since they offer yields of around 60%, being quite liquid. Regarding longer bonds, we find the real yield of short bonds CER linked, such as Boncer 20 (TC20) or Trigger 2020 (A2M2), which reach 38%, as very appealing.
Regarding dollar bonds, our suggestion continues to be to maintain a position in liquid and short bonds, mainly Letes in dollars, which yield between 4% and 5%, which have a significantly lower price volatility than longer bonds. For more aggressive portfolios, longer options are attractive, such as the Argentine Law Par Bond (PARA), or New York Law (PARY). As the sovereign curve is inverted, these bonds offer a lower yield, but they also offer a greater cover in the case of a stress event, given their low parities.
Regarding corporate bonds, we recommend maintaining a position in securities issued by exporting companies, minimizing the risk of currency mismatches and diversifying sources of income generation. Among the most prominent are Pan American Energy, Adecoagro and TGS.
Outlook
The Federal Reserve did not surprise last week by cutting the rate range by 25 bps. However, Powell's subsequent speech was not welcomed in which he gave no sign of continued cuts. As the decision was based on the fact that the US economy continues to show a mixed scenario, with high job creation and growing consumption, and the greatest risks come from the slowdown in global demand and the persistence of the trade conflict with China.
In this sense, failed negotiations between the US and China resulted in higher tariffs on Chinese imports and a devaluation of the yen that spread to all currencies. Paradoxically, the search for protection raised Treasury prices, with the consequent drop in rates. The 10-year bond yield closed at 1.74%, one of the lowest levels in the last three years.
Therefore, the perception that the trade conflict is far from being resolved, and that the negative effect on the global economy and on the US increased, has raised expectations that the Fed will inevitably lower rates again in the near future. A new cut is expected at the September meeting, and possibly another one at the October meeting.
Highlights
- Performance: In terms of pesos, Argy bonds closed +1.21% on average last week, according to the IAMC Bond index.
- Global rates: The UST 10-year yield closed at 2.05% today.