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, we highlight Bonar 2024 (AY24), with a 14.3% yield, and Bonar 2020 (AO20) with a 14.7% yield. Despite having an inverted sovereign yield curve, 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 2.09% today. Up to two rate cuts are expected in 2019.
Highlights
- Performance: In terms of pesos, Argy bonds closed +0.50% on average last week, according to the IAMC Bond index.
- Global rates: The UST 10-year yield closed at 2.09% today.