EM LATAM CREDIT: Argentina: Local bond auctions and Monetary Policy - Neutral
(ARGENT; Caa1/CCC/CCC+)
"The government will strengthen the "vacuum cleaner" for pesos with more debt to avoid an impact on rates and the dollar." - Infobae (translated by Google)
The government attempted to rollover ARS15Tn yesterday and only 61% was successfully placed. We can make some observations and point out some silver lining in the results.
To put this in context, controlling inflation, monetary supply and the FX rate are all important determinants of maintaining the country's positive recovery.
There was excess liquidity in the financial system at one point a few weeks ago due to the halting of a specific type of local bond issue so consistent with the plan to manage the money supply to contain inflation the government engineered an absorption of those excess pesos by increasing reserve requirements. All the banks had to raise the rate they were paying on fixed rate deposits substantially to around 44% in many cases.
Yesterday the government faced a massive rollover of short maturity local debt and as there was still a peso shortage in the market only about 61% was placed so another extraordinary auction will take place this Monday of about ARS5.7Tn to mop up the excess liquidity as the government unable to place new debt had to pay off the maturing issues.
The silver lining is that short dated issues were less in demand relative to longer maturity issues and that dollar linked debt (BONCERS) were less demanded as well, both suggesting that investors want to lock in higher local rates denominated in pesos for longer.
ARGENT 35s were last quoted USD67.22, unchanged so far today and we wouldn't expect much impact from this news of the auctions.
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