STRATEGY
The primary elections result triggered the expectation of a very pessimistic scenario for Argentine securities, and the uncertainty over Alberto Fernandez's possible economic actions regarding a possible FX and capital controls and a sovereign debt restructuring led to slumps in prices. In this scenario, Letes with maturities in 2019 having strongly corrected are not at stake.
As for assets in pesos, we favor Lecaps, with very attractive yields for all the curve.
Regarding dollar bonds, our suggestion continues to be to maintain position in dollar denominated Bills maturing in 2019.
Outlook
The Federal Reserve did not surprise 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 +0.75% on average last week, according to the IAMC Bond index.
- Global rates: The UST 10-year yield closed at 1.67% today.