STRATEGY
After the Government’s disclosure about Argentine bonds maturities extension plan, we estimate that the final project would be more aggressive than the original one. This scenario would imply in potential principal and or coupons haircuts, of capitalized coupons, such as Discount bonds. We do not consider attractive to increase exposure to Argentine securities.
For portfolios seeking to maintain some exposure to domestic securities, we suggest to focus on corporate bonds issued by companies with significant levels of exports and dollar denominated revenues, such as TGS, Aeropuertos Argentina 2000, Adecoagro or Arcor. It is worth mentioning that its main risk factor is a potential “technical default” due to the FX control.
Outlook
The US economy continues to show a mixed scenario, with high job creation and growing consumption, and the greatest risks come from the slowdown in global demand and the persistence of the trade conflict with China.
In this sense, failed negotiations between the US and China resulted in higher tariffs on Chinese imports and a devaluation of the yen that spread to all currencies. Paradoxically, the search for safe havens raised Treasury prices, with the consequent drop in rates. The 10-year bond yield closed at 1.74%, one of the last three years’ lowest levels.
Therefore, the perception that the trade conflict is far from being resolved, and that the negative effect on the global economy and on the US increased, has raised expectations that the Fed will inevitably lower rates again in the near future. A new cut is expected at the September meeting, and possibly another one at the October meeting.
Highlights
- Performance: In terms of pesos, Argy bonds closed -1.05% on average last week, according to the IAMC Bond index.
- Global rates: The UST 10-year yield closed at 1.83% today.