Sunday , June 13 2021

So far, the global wind has killed the political risk. How long does it last?

How does the film go on?

While the risk for the country is not queuing, BCRA has some freedom to continue to lower rates, although at a slower pace. Some of them were already listed in the Leliqs auction yesterday with BCRA, which swallows pesos, exceeding the monetary program, but with a more gradual interest rate cut than in recent weeks.

It is extremely important to reduce the rate of interest rate cuts in order to extend the path of time cuts in the context of tranquility of exchange rates.

There is still a cushion of the real exchange rate and the real expected rate, after overcoming these variables as a counterbalance to the balance of payments crisis. It is natural that financial stabilization has the opposite of the consumption of this real exchange rate (the dollar moves behind inflation) and the real exchange rate (low nominal levels with constant inflationary expectations).

On the part of the monetary program, the BCRA has a place to stop shrinking the monetary base (and even expanding it) without compromising the monetary base's purpose for the month.

At this level of inflationary expectations, we could have a first scale in the downward path of nominal rates, with The Leliq percentage in "40% TNA", Badlar in "35% TNA," as the dollar is steadily converging into the non-intervention area, and banks are starting to look with a better eye for corporate demand than comparing a spread between Leliq speed and Badlar speed. In line with the sharp decline in the Leliq rate, the rate of advance payments to companies dropped from a peak of 80% in October to a 50% share.

In the decision the dollar / agent rate will be key that on this path at low nominal rates (now endogenous) the BCRA signal remains a positive expected real rate against inflation expectations, in addition to country risk and devaluation expectations in election year. Therefore, in the medium term, it is necessary to reduce the inflationary expectations of extending the downward path of nominal rates over time in the context of exchange rate stability.

Attention in the dollar / rate balance

Faced with the risk scenario on the global markets and the flow of funds, the hidden ROFEX futures curve rates were adjusted against the decline in the BACR interest rates, the dollar being below the bottom of the non-interference zone and the BACR reserves. But in recent days, Rofex's impressive interest rate curve has been leveled as a result of the slump in the slightest: a signal for an increase in expectations for short-term devaluation?

Very good signal to continue observation; along with the stability of time deposits against the fall in interest rates (especially in the shorter curves).

In this sense, BCRA must maintain caution in confirming new interest rate reductions (endogenous) in order not to stabilize risk exchange, maintain growth of fixed deadlines, and thus resume Leliqs maturities at a declining pace in time

Although Leliq's low rate has reached high speed in recent weeks, the currency is at the peak of the monetary target of the month. Does ammunition continue to expand in the coming weeks or put "ABS" at the lower rate in order not to stabilize the asset-risk swap in the Pesos (fixed term, Lecaps)?

Reducing Unpaid Reserves as an Alternative Option to Overcome the Cash Program With Purchases of Dollar BACP? The fall in unpaid mandatory reserves, from high starting levels, would not only help to increase banks' credit capacities but also distinguish the rate of decline in the active rate (faster in this case) than the lower rate. in the passive rates that reward deposits (slower in this case) and compete with the alternative for dollarisation of the portfolio. With the start of the loan, banks will have another chance to go to Leliqs, and this will take the fuel to a low rate for good.

Ammunition faces pressure to exchange. The Treasury has over $ 9,000 million left on the financial program if the refinancing of "flying" in dollars is 46%. BCRA may increase its sales position in the futures markets up to $ 2,700 million. And thick dollars.

And the weights that can be transferred to the dollar? Since the beginning of the monetary program in October, the fixed deadlines have accumulated an increase of $ 300,000 million, with great adherence to the fixed deadlines. Of the total stock of Lecaps ($ 10 billion), a minority (about 40%) is in foreign funds.

Diversification of the wallet portfolio

Taking into account the real interest rate swing in fixed-rate pseudo-real estate assets against the Leliq rate collapse, bonds that adapt to inflation can be an interesting means of diversifying the wallet portfolio (at a real 7/8 pace %), with inflation that is barely below 2.5% a month in the coming months, in the context of rising rates and the resumption of parity.

Asymmetric risks in the dollar bond curve?

At 660 basis points, the country risk and implicit default probability of 5-year CDS contracts is about 36%, we can say that market assessments appear to be more optimistic than the "50/50" scenario, which today presents surveys against binomial political scenarios.

With the US dollar government bond yield curve, the bond market is more optimistic than "50/50", which surveys reflect and take into account the potential asymmetry of risks in the face of binomial scenarios, short dollar bonds, they configure a suitable asset for to maximize risk-adjusted returns.

Strictly speaking, lower sensitivity of short- / mid-curve segment bond prices with respect to the movement of the market discount rate (effect of duration) and the high accumulation of coupons adjusted for the entry price of these bonds (current yield) they become an important asset for the investor wishing to transfer the electoral risk to the dollarised portfolio.

(*) Economic Director of Eco Go and Professor at UTDT

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