EM LATAM CREDIT: Argentina: FX Intervention - Neutral

(ARGENT; Caa3pos/CCC/CCC+)

"The Government decided to put a ceiling of $1,300 on the official dollar to avoid an impact on inflation." - Infobae

Bonds have been trending lower recently despite good news on the inflation front a few days ago as other issues move to the forefront.

The Central Bank sold dollar futures and raised short term rates yesterday, enough to move the ARS off the 1300 level to the USD as the currency has already been depreciating from about 1185 a month ago.

The un-official blue dollar ARS rate had already breached 1300 earlier this week, last quoted about 1325 which was up from about 1185 a month ago and in a bit of warning the gap with the official rate has widened.

The government has failed to raise reserves to the IMF's target that was specified in the USD20bn April 2025 agreement as they face their first EFF (Extended Fund Facility) review and await a decision on disbursement of USD2bn more from the development bank. They are challenged to raise reserves by increasing exports despite what some regard as an overvalued currency yet a stronger currency is useful in containing inflation.

On the fiscal front the government is challenged to maintain budget restraint despite a mini revolt from provincial governors and legislators, some of whom are running for election in October, who voted on some bills that increase spending while President Milei declared he would veto the bills and take the issue to the courts if necessary.

Milei and his team continued to meet with the governors to negotiate a settlement. In the past, Milei has managed to get his agenda passed by leveraging the federal government's transfer revenues to the provinces but the governors now seem to be resisting that strategy.

The fiscal discord is not a welcome development ahead of the October legislative elections where President Milei needs to pick up representation for his LLA (La Libertad Avanza) party to enable passage of further economic reforms.

ARGENT 2035s were last quoted USD65.15 which was 1 point lower this week, 2.5 points since March 31st and 1.5 points lower YTD. We are about 4 points off the YTD high set in early January.