Peso rates rise: Market eyes bonds for greater coverage

Interest rates on peso-denominated bonds have seen an increase in recent weeks, drawing market attention to local currency sovereign bonds. In this evolving landscape, specialists are continuing to favor instruments offering built-in coverage, particularly dual bonds.

According to a report by Delphos Investment, this trend is driven by "a Treasury strategy to incentivize savings in pesos, deepen disinflation, and decompress demand for currency hedging." The government's recent auction on the previous Wednesday saw a 144% rollover, effectively sterilizing pesos, neutralizing the inflationary impact of issuance, for a month typically marked by high demand. This action helped maintain the monetary base unchanged from the prior month and "pushed up the economy's rates," the report noted. Current yields are sustained by a "gradual pickup in money demand," it added.

Gustavo Araujo, head of Research at Criteria, attributed the rise in peso rates primarily to a "transitory tightening of liquidity conditions." This was caused by the net absorption from the late July auction (approximately $3.8 trillion pesos) and ongoing sterilization operations by the Central Bank (BCRA) through repo transactions, which withdraw pesos from the market. "As a result, the overnight collateral rate traded around 25% TNA, and the Tamar reached 23.3% TNA, its highest level since early May," Araujo detailed. He also observed that this movement negatively impacted fixed-rate instruments, which experienced corrections post-auction.

Max Capital analysts concurred that the latest Treasury auction fueled the recent surge in peso rates. They noted that "liquidity in the system reached a level where some volatility was observed in short-term rates." However, they clarified that this situation "will improve in the coming days with the BCRA's foreign exchange purchases and open market operations."

Delphos Investment observed that some peso instruments are now offering returns above projected inflation. "Lecap and Tamar are again yielding a positive real rate," they stated. Lecap, or Capitalization Bonds, in the short term are yielding around 2% TEM (Monthly Effective Rate) following the rise in the fixed-rate curve. With projected inflation between 1.5% and 1.6% for year-end, these offer a positive real return of approximately 0.5% TEM, though they carry higher risk due to their sensitivity to market changes.