Finanzas Argentinas

1
Balanz Flash
March 3, 2016
Argentina Strategy Update: The BCRA Roars & The Market Flinches
The BCRAs powerful boost in interest rates of +585bps on the 35day tenor, +450bps on the
63day tenor and +380bps on the 98day securities is an unequivocal signal to the local capital
market players. It may not end here. The BCRA is telling the market that it will not stand by and
allow the local institutional investors to speculate freely in Rofex and MAE futures without facing
the risk of aggressive rate hikes.
Interest rates will remain elevated in coming months due to sizeable domestic funding needs
linked to provincial debt issuance, the resumption of Bonac (Treasury bond auctions to fund the
deficit), and the massive rollover requirements in the BCRAs LEBACs over the next few months.
The local institutional investor market is not large enough to easily absorb the truckload of debt
that will be coming on offer, and the BCRA is eager to lure international investors to the local peso
bond market. Crowding out is a major investment theme for local peso debt this year. YPF just
issued 5-year debt at BADLAR +600bps, demonstrating that the market is extracting higher yields
from issuers. This could be a plus for investors willing to buy duration.
Make No Mistake: This Rate Hike Is Recessionary In The Near Term. Our recent conversations
with our corporate clients clearly indicate that the Argentine economy has slipped into recession
in the first two months of the year. In this report, we provide a picture book that shows a rapid
deceleration in economic activity immediately following the December devaluation. Corporates
are being squeezed by sky-high interest rates.
GDP-Linked Warrants: Put Some Money In Your Pocket. We updated our quantitative model on
the GDP warrants, and the assumption that Argentina will grow 3% in 2017 and above 3% in the
three consecutive years afterwards looks like a riskier proposition when we review the countrys
long-term growth track record. Since 1980, Argentinas GDP has only grown above 4% for three
years in a row three times, and statistically the probability of a recession in any given year is
around 52%. We suggest taking profits in the TVPP and the TVPY cupones while concentrating
investments in the TVPE which has underperformed its cousins since our September 11, 2015 indepth report. A big driver of warrant outperformance is the cost of capital, but the decline in
country-risk is not helping Argentinas private sector that only has access to peso financing.
We update some of our carry-trade ideas based on the significant reset this week in LEBAC,
Badlar, Rofex and NDF implied rates. Issuance of liquid bonds is increasing, and there are growing
opportunities in this space. LEBACs with 35day to 147day terms are offering the juiciest yields.
_______________________________________________________________________
Disclaimer: This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.
2
Sturzenegger Draws A Line In The Sand: It Was About Time
Following a month when the BCRA spent over US$1.2bn in reserves in a futile and frustrating attempt to
defend the peso, BCRA Chief Federico Sturzenegger sent a powerful, and much needed, message to the
market that he is ready and willing to hike interest rates aggressively to control inflation and quash local
peso speculation. We congratulate the BCRA on this courageous move as the Rofex futures market was
starting to behave like the ARS is a one-way bet, and for a Central Bank governor, this type of burgeoning
perception would be extremely dangerous in a country like Argentina. The 12M NDF Futures contract for
December fell sharply from 19.90 to 19.02 implying a one year-forward devaluation of 25.7%. The 12M
NDF spiked 10% since February 24th before correcting sharply after the BCRAs rate hike. We believe that
this market expectation was becoming overcooked and indirectly reflected the markets lack of interest
in LEBACs yielding flat or slightly negative real interest rates.
We believe that this step function boost in interest rates of +585bps on the 35day tenor, +450bps on the
63day tenor and +380bps on the 98day securities is an unequivocal signal to the local capital market
players. It may not end here. The BCRA is telling the market that it will not stand by and allow the local
institutional investors to speculate freely in Rofex and MAE futures without facing the risk of aggressive
rate hikes as retaliation. Moreover, this policy is tacitly confirming that until the soybean liquidation
season begins, the BCRA is not willing to sacrifice large slugs of its international reserves through
additional interventions (basically because they have not worked). In addition, the BCRA clearly senses
that the local corporations have abused their pricing power, especially since the Kirchner administration
pit bulls are no longer monitoring and punishing their every transgression. The political transition in
January and February effectively reduced the supervision of wholesale and supermarket prices, and this
vacuum presented an opportunity. The best way to punish this activity is to dramatically increase the cost
of funding in the economy and to double down on price monitoring. We are hearing that the small
companies and medium-sized corporations are witnessing dramatic increases in their traditional funding
mechanisms like discounted checks and factoring, but price increases are starting to meet with falling
demand.
LEBAC Curve: Before & After Tuesdays Auction
Crowding Out Could Maintain Rates High Throughout The Year

It is important to factor in the sizeable domestic funding needs linked to provincial debt issuance, the
resumption of Bonac (Treasury bond auctions to fund the deficit), and the massive rollover requirements
in the BCRAs LEBACs over the next few months (see chart below). The local institutional investor market
_______________________________________________________________________
3
is not large enough to easily absorb the truckload of debt that will be coming on offer. The mutual funds
have an industry AUM of ARS217bn and the investable assets of the insurance industry total
approximately AR200bn. We can add in the cajas profesionales (Trade association pension accounts) that
would represent an investor base of ARS35bn. This pool of savings totals to ARS452bn or US$30bn. It
simply is not wide or deep enough to take down this overhang at the interest rates that were being
offered before the rate hike. For this reason, we expect BADLAR and LEBAC interest rates to remain
elevated until the Treasury brings down the fiscal deficit and/or international funds have larger positions
in Argentine local securities.
In addition to the rollover pressure from the LEBACS (a Central Bank monetary bill), the Treasury will come
back to the market with additional sales of Bonar 18 (BADLAR + 275bps) and Bonar 2020 (Badlar +325bps).
The Treasury placed ARS12bn in these two bonds in recent weeks, but the overall announced program
called for ARS40bn in issuance in the first six months. We expect the Bonac offerings to grow in size over
the course of the year.
LEBAC Maturities March To April
Stock of LEBACs in Circulation: $451.855 billion

LEBACs Expiring Until Mid-May: $334 billion
Percentage of Stock To Be Rolled Over: 76%
Argentinas 12M NDF
_______________________________________________________________________
LEBAC Auction History

02/02/2016
10/02/2016
16/02/2016
23/02/2016
01/03/2016
Monto (MM)
$ 50.205
LICITACION EN PESOS
Das
Tasa
35
30,5005%
63
29,5001%
98
28,8001%
119
27,9999%
147
27,9799%
203
28,0000%
252
27,9999%
Monto (MM)
$ 47.078
LICITACION EN PESOS
Das
Tasa
35
30,2498%
63
29,2488%
98
28,4998%
119
27,6000%
147
27,7790%
203
27,7400%
252
27,7400%
Monto (MM)
$ 57.733
LICITACION EN PESOS
Das
Tasa
35
30,4994%
63
29,5001%
99
28,4997%
119
27,9999%
147
27,0000%
203
27,2500%
252
27,5000%
Monto (MM)
$ 32.849
LICITACION EN PESOS
Das
Tasa
35
31,1461%
63
30,0003%
98
29,1951%
119
28,5000%
147
28,1500%
203
28,2000%
252
28,6000%
Monto (MM)
$ 34.564
LICITACION EN PESOS
Das
Tasa
35
37,0002%
63
34,4998%
98
32,9994%
119
31,5000%
147
31,1499%
203
28,0000%
252
31,5363%
Monto (MM)
USD 774
LICITACION DOLARES
Das
Tasa
35
1,4997%
91
1,5001%
Monto (MM)
USD 1.235
LICITACION DOLARES
Das
Tasa
35
1,2498%
91
1,0000%
Monto (MM)
USD 581
LICITACION DOLARES
Das
Tasa
35
1,0000%
91
1,0000%
Monto (MM)
USD 1.048
LICITACION DOLARES
Das
Tasa
35
0,8997%
92
0,8999%
Monto (MM)
USD 383
LICITACION DOLARES
Das
Tasa
35
0,8997%
Make No Mistake: This Rate Hike Is Recessionary In The Near Term

Our recent conversations with our corporate clients clearly indicate that the Argentine economy has
slipped into recession in the first two months of the year. Bank lending stalled in January and February,
car production was down -27.1% yoy in the first two months of 2016, cement shipments fell -8.5% yoy and
FIELs industrial index dropped -0.6%. Consumer confidence dropped -9.7% yoy and -15.6% mom including
a -24.5% freefall in current expectations. Februarys car exports to Brazil collapsed -41.5% to 14,178 units,
and this followed a 49% decline in January.
The interest rate hike is also slamming the brakes on the expansion in bank credit. Peso based lending
was growing at a 38.1% annualized clip in December 2015 (including a hefty +4.9% in the month of
December), but year-to-date in February, commercial loans have shrunk -2.5% including -1.1% in January
and -1.6% in February. Consumption loans are still growing +2.5% ytd but this segment was expanding at
47.7% yoy pace at the end of last year. If we consider that inflation in the first two months reached close
to 8.0%, an overall 2.2% nominal increase in total loans represents a sharp contraction in real terms.
Picture Book of Argentina Economic Activity: Bad to Worse But Perhaps

Temporary
Before we summarize and comment on the following picture book of charts illustrating the trends in
todays Argentine economic backdrop, we want to establish that most of these negative trends are
predictable reactions to a hefty devaluation of the peso and the monetary policy being conducted not only
to contain the inflation pass-through, but also to avert a more disruptive overshooting. Nevertheless, the
prevailing market wisdom is that Macris dream team will right the ship quickly and efficiently, setting up a
multi-year bonanza of growth and asset returns. Our confidence in this long-term outcome has not
wavered, but Maurcio Macris March 1st speech to Congress clearly communicated that the Kirchner
economic hangover and tainted legacy is by no means a quick fix or a done deal. With this in mind, we are
highlighting these charts in order to provide a reality check on what we perceive to unbridled bullishness
and to guide investors to reconsider which assets offer the best way to play each one of the multiple
adjustment stages being orchestrated by the highly capable Macri economic team.
_______________________________________________________________________
5
Underlying February Tax Collection Numbers Spotlight Big Deceleration In Consumption
The AFIP (Argentinas tax authority) released preliminary tax collection numbers for February showing an
overall +26.5% yoy growth rate, down sharply from the +38.5% yoy expansion registered in January. The
most telling item in the report was the weakening trends in the VAT Tax excluding the VAT taxes on
imports category. The headline overall VAT revenues expanded a respectable 34.3% yoy, but this
outcome was flattered by a 70.1% burst in import related value-added tax. Imports were artificially
suppressed under Axel Kicillofs reign as Finance Minister, and Macris economic team has reopened this
part of the economy by lifting the cepo cambiario. The VAT tax on other commercial activities grew just
22.2% or 500-600bps below inflation, and this poor figure followed an equally anemic January expansion
rate of 24.5%. The sputtering VAT tax collection is an undeniable signal that consumers are feeling
squeezed by inflation, and they are economizing in the early part of 2016. Unlike income tax collection
that was negatively influenced by Macris early round of tax cuts, the VAT tax deterioration is an alarm bell
signalling recession. With income tax to be impacted by large tax cuts, the VAT Tax was supposed to be
the locomotive driving the countrys tax revenue, and this simply is not the case at the moment.
YoY Growth Rates IVA DGI vs IVA Overall
Date
Feb
Jan
Dec
Nov
Oct
Sept
Aug
Jul
Jun
May
UTDT Inflation Expectation: +500 Bps.
Industrial Activity FIEL: -0.6%
VAT DGI
22,2%
24,5%
32,5%
35,7%
38,4%
38,2%
42,4%
31,1%
42,9%
34,8%
VAT
Overall
34,3%
36,1%
4,0%
30,1%
33,1%
30,9%
39,2%
28,3%
34,2%
25,9%
Breakdown by Type Asset: -16.6% Capital G
Di Tellas Index of Inflation Expectations spiked to 33.6%, marking a +500bps sequential increase. The BCRA
must react aggressively to stop this inflationary mentality from spiralling out of control.
_______________________________________________________________________
6
Industrial Activity by Sector FIEL
General Economic Activity O. Ferreres: -1.9%
FIEL and Orlando Ferreres Economic Activity and Production Indices have turned south with few
industrial groups pulling the GDP growth wagon. Vehicle production was down -32.7% yoy in
January, cement shipments fell -8.5% yoy and FIELs industrial index dropped -0.6%, while the
Orlando Ferreres index slid -1.6%. Chemicals and financial services are the two bright spots.
Trade Balance: Import +0.7%; Export -25.4%
_______________________________________________________________________
Argentina Trade Balance

Date
Last Price Imports YoY
31/12/2015
4521
0,7%
30/11/2015
4741
-0,5%
31/10/2015
4951
-10,4%
30/09/2015
5546
0,8%
Date Last Price Exports YoY

31/12/2015
3411
-25,4%
30/11/2015
4000
-24,2%
31/10/2015
5205
-12,8%
30/09/2015
5611
-6,7%
Global trade numbers have been poor due to weak growth and falling commodity prices, and in
Argentina, the last few months of 2015 registered a sharp deceleration in exports. In the last two
months of last year, the exports fell -24.2% and -25.4%, respectively. Imports should begin growing
solidly now that the FX market has been opened.
Crude Steel Production Index: -11.8% In January
Steel Production - Argentina

Date
31/01/2016
31/12/2015
30/11/2015
31/10/2015
30/09/2015
31/08/2015
31/07/2015
30/06/2015
31/05/2015
Last Price
350
372
405
469
446
474
431
445
411
YoY (%)
-11,84%
-14,29%
-13,65%
-1,68%
-3,67%
-1,04%
-6,71%
6,71%
-8,46%
Steel production has declined -13.65%,-14.3% and -11.84% in the last three months, spotlighting
weakness in the automotive industry and durables.
_______________________________________________________________________
8
Argentina Vehicle Exports: Deep decline in the exports // Brazil accounts for 72% of Exports.
Argentinas Vehicle Export Markets

Argentina Vehicle Exports
Date
29/02/2016
31/01/2016
31/12/2015
30/11/2015
31/10/2015
30/09/2015
31/08/2015
31/07/2015
30/06/2015
31/05/2015
Export
14178
3888
10961
18599
18834
21853
21355
21817
28218
22454
YoY (%)
-41,47%
-48,98%
-62,26%
-52,44%
-48,70%
-27,33%
-22,18%
-9,42%
-18,01%
-25,48%
Argentinas vehicle exports fell -43.3% yoy first two months of 2016 after plummeting -63.3% in
December. The Brazilian market (72.1% of export demand) is in the grips of a severe recession,
and Argentina is seeing the knock-on effects. The good news is that domestic car sales to dealers,
including imported vehicles, jumped 31.1% yoy in the first two months, but imports, not
domestically produced vehicles, are driving this boost. Total production fell -30.6% yoy in
December and -25.1% in February yoy.
_______________________________________________________________________
9
Argentinas Cement Shipments
Argentine cement deliveries fell -8.7% yoy in January 2016 after registering growth of +1.8% yoy in
the four quarter of 2015. We expect the construction sector to pick up speed in the 2H16.
Banking System Pictures: Loan Growth Stalling
32%
30%
January 2nd, 2010 = 100
28%
26%
1
24%
22%
1
20%
18%
16%
Loans/Deposits Ratio
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Oct-13
Jan-14
Jul-13
Apr-13
14%
Jan-13
Overdrafts Rate ARS (right axis)
_______________________________________________________________________
10
The banking industrys sustained growth trajectory is starting to slow. Compared to other banking
systems, Argentinas banking industry is still in a comfortable position, but the charts show that
funding is becoming less abundant and more expensive. Bank lending stalled in January and
February with only 2.5% nominal expansion during a period when almost 8% inflation was
registered. In real terms, lending contracted -5.5% in the first two months of the year. Most loan
categories turned negative in February, and the commercial loan segment shrunk -1.1% in January
and -1.6% in February. This does not augur well for economic activity in coming months.
Short Term Investment Conclusions: Warrants May Run Out of Steam On Recession, Carry Trade
Becomes More Compelling
Thinking tactically, we believe that it is time to top slice large positions in the GDP-linked warrants,
especially the TVPP and TVPY flavors. We have been vocal and active supporters of the warrant trade
since last September, but the near term execution risks to Macris economic plan are rising rapidly. We
looked at our GDP-warrant model, and if there is not 3% growth in 2016 or 2017, but there is >3% growth
in 2018, the YTM for the TVPP warrants in pesos would be only 24% compared with the 25.4% expected
devaluation rate embedded in Argentinas 12M NDFs (see chart above). If Argentina does achieve >3%
growth in both 2017 and 2018, the YTM climbs to 34%, which is not that attractive compared to the
current interest rate backdrop in Argentina. We would take profits in the TVPPs, and we would rotate
from the TVPYs to the TVPEs given that the Euro has corrected -4% in recent weeks. As we can see from
the chart below, the GDP warrants have stalled in the last two weeks, and this is explained by the volatility
in the ARS.
During our latest visit to NY, we discovered that the hedge fund and real money community in the Big
Apple is highly enthusiastic about the GDP warrants at the moment, and we suspect that these securities
have become a crowded trade. Our belief is that the news flow out of the real economy is going to turn
decidedly negative in the next 3-6 months, and the opportunity cost of holding outsized positions in the
warrants does not make sense given the material opportunity cost and relative value proposition offered
by the carry trade investments that are starting to improve in liquidity and returns.
TVPY Warrants Underperform During Sustained Periods of ARS Devaluation
_______________________________________________________________________
11
Argentinas Long Term GDP Track Record Marked By Volatility & Frequent Recessions
While there are manifold reasons to be optimistic about Argentinas GDP growth outlook post 2016, for
GDP warrant holders, it is important to take a walk down memory lane and examine Argentinas growth
long-term track record. Since 1980, Argentina has only managed to grow its economy above 3% per year
in three consecutive years three times: (1) 1991-1994; (2) 1996-1998, and (3) 2003-2008. This volatility is a
function of dysfunctional politics and the dominance of Peronist governments, powerful unions and fiscal
profligacy. Argentinas new government is implementing many of the right policies, but Argentinas future
growth trajectory will require help from the global economy and a sea change in inflation levels and fiscal
policy.
Argentinas GDP Normal Distribution (High Incidence of Recessions/Slow Growth)
Large skew of recession and

slow growth years
From 1885 to present, Argentina has, on average, suffered a recession every four years. Since 1913, the
average GDP expansion rate has barely managed 2.7% growth annually. Only four times throughout
history Argentina has been able to grow four consecutive years at 4% or higher. A highly bullish trade in
the warrants presupposes that this Argentinas economic DNA has been altered by a group of economic
magicians. We are not questioning that there is room for optimism, but making this transformation is not
a simple task; it is a Herculean undertaking. After a +39% return in TVPP since September, putting some
profits in the pocket makes sense to us.
_______________________________________________________________________
12
Since 1975, the past 40 years, Argentina had fourteen recessions, and also Argentina had a serious CRISIS
with a memorable moniker every five years. A few examples: Rodrigazo, Tablita, the Austral Plan, the Plan
Primavera, hyperinflation, the Bonex Plan, Tequila, 2001 corralito. Our statistical model for GDP shows that
Argentina has 52.4% probability that its GDP will grow more than 3% in any given year. This is a bit better
than flipping a coin.
Probability Of Argentina GDP Growth >3%: A Bit Better Than Coin Flip
GDP Three consecutive years or more of >3% GDP growth

Descriptive Statictics
Mean
Statitical error
Median
Standard Deviation
Variance
Curtosis
Skewness
Range
Min
Max
Suma
Sample
Confidence Level(95%)
p(X>3)=1-p(X<3)
0,033
0,005
0,042
0,053
0,003
0,222
-0,184
0,307
-0,108
0,199
3,731
113
0,010
52,379%
Our Quantitative Model For The GDP-Warrants Offers High Return Profiles..But Only If GDP Growth
Exceeds 3% For Three Consecutive Years Post 2016
One of key drivers to valuation gains in the GDP warrants is a decline in Argentinas cost of capital. The
USD sovereign bond yields have fallen 150-170bps across the sovereign curve since we published our indepth September 11th report, Time to Get Back Into The GDP Warrants? We think So. The TVPYs
denominated in USD have returned 37.5% in this time frame, but this warrant has corrected -4.3% from
the highs reached on February 17th. The TVPP has risen +39% in USD and the TVPE +29% in USD. Under
the current economic environment, the sturdiness of this linkage to sovereign bond yields is questionable
given that Argentinas domestic cost of capital is increasing sharply in reaction to pass-through inflation
from the devaluation and tight monetary policy. Domestic interest rates are much more influential on
GDP outcomes than USD debt costs. Argentinas USD denominated corporate debt is only US$49 billion
or 8.9% of GDP, so only a small fraction of the corporate sector can immediately benefit and access lower
USD yields that will take hold after the holdouts deal. Meanwhile, the vast majority of the corporate
_______________________________________________________________________
13
universe is financing their operations at BADLAR +400-650bps, a nominal rate that is 30.5% to 34%. Until
this domestic cost of capital follows the country risk down, the multiplier effect on GDP will be more
negative than positive. In the chart below, we show just how dramatically the domestic cost of capital has
spiked in the last few weeks.
Lebac and Badlar Interest Rates: Big Move Up
Investment Conclusion: TVPE Still Offers Value But Upside Requires >3% Growth 2017, 2018, 2019
In the tables provided below, we provide some of the outputs of our quantitative model for the three
main GDP-linked warrants. The YTMs are based in the currency denomination of each warrant so that the
TVPP YTM does not factor in future devaluations, the TVPY is priced in USD and the TVPE is in Euros. It is
extremely important to keep in mind that GDP trigger payments are made in pesos so large
devaluations decrease the returns to the hard currency warrants (TVPY and TVPE). The attractive YTMs
in our first simulations assume meeting the following challenging, albeit entirely possible, scenarios: (1)
Argentina will grow more than 3% in 2017, and will continue growing above 3% in the subsequent three
years (remember how few times this has taken place in Argentinas history); (2) Argentina will not grow
above 3% until 2018 but will expand above 3% the subsequent three years; (3) Argentina will grow above
3% in 2017 and 2018, but the GDP growth will not reach 3% in 2019 and 2020. In all of these simulations,
the TVPE comes out on top in terms of potential returns, but the other two warrants, expressed in hard
currency returns, fail to fully compensate investors for the potential shortfalls to growth, should they
occur. Using our baseline scenario, the TVPE has the highest remaining residual value of 2.83x the current
price. We suspect that better entry points may present themselves in coming months.
When investing in these warrants, it is important to remember that they pay zero current yield so if they
do not trigger payments they fail to offer the compounding (reinvestment of interest) benefits of bonds
with high coupons and elevated current yields. The warrants historically have performed poorly during
years with high levels of FX volatility, which makes sense since because a volatile currency acts a catalyst
for higher inflation, spiking interest rates and greater economic insecurity.
_______________________________________________________________________
14
Residual Value
Warrants
U$S - NY LAW (TVPY)
EUR - Engl. Law (TVPE)
ARS - Arg. Law (TVPP)
Price
USD 11,58
EUR 10,94
ARS 10,60 / USD 0,68
Residual
USD 29,97
EUR 31,01
ARS 24,60
Residual/Price
2,59x
2,83x
2,32x
GDP Warrant GDP Scenarios
Scenario I
GDP % Trigger
Scenario II
Scenario III
Year
GDP Grow th (%)
Year
GDP Grow th (%)
Year
GDP Grow th (%)
3,0
2016
1,0
2016
1,0
2016
1,0
3,0
2017
3,0
2017
2,0
2017
3,0
3,0
2018
5,0
2018
3,0
2018
3,0
3,0
2019
4,0
2019
5,0
2019
1,0
3,0
2020
3,0
2020
4,0
2020
1,0
3,0
2021
1,0
2021
3,0
2021
4,5
3,0
2022
3,5
2022
1,0
2022
2,0
3,0
2023
3,0
2023
3,5
2023
1,0
3,0
2024
1,0
2024
3,0
2024
n/a
3,0
2025
1,0
2025
n/a
2025
n/a
3,0
2026
3,0
2026
n/a
2026
n/a
3,0
2027
3,0
2027
n/a
2027
n/a
3,0
2028
1,0
2028
n/a
2028
n/a
3,0
2029
3,0
2029
n/a
2029
n/a
3,0
2030
n/a
2030
n/a
2030
n/a
3,0
2031
n/a
2031
n/a
2031
n/a
3,0
2032
n/a
2032
n/a
2032
n/a
3,0
2033
n/a
2033
n/a
2033
n/a
3,0
2034
n/a
2034
n/a
2034
n/a
_______________________________________________________________________
15
GDP Trigger Payment Schedules On Three GDP Scenarios
Date
TVPY TVPE TVPP
TVPY TVPE
03-Mar-16
15-Dec-16
15-Dec-17
-11,58
-
-11,58
-10,94
TVPP
TVPY
TVPE
TVPP
-10,60
-11,58
-10,94
-10,60
23,14
3,00
3,46
23,14
15-Dec-19
3,46
3,99
1,45
3,09
3,56
1,45
15-Dec-20
3,76
4,33
15-Dec-21
3,87
4,46
-
3,13
23,84
3,18
3,66
0,76
3,47
3,99
3,57
4,11
15-Dec-23
3,78
4,36
15-Dec-24
3,90
4,49
3,46
2,72
3,00
-10,60
15-Dec-18
15-Dec-22
-10,94
2,77
-
3,46
3,99
15-Dec-25
3,57
4,11
2,49
2,87
15-Dec-26
2,57
2,96
15-Dec-27
3,32
3,82
15-Dec-28
3,42
2,13
15-Dec-29
15-Dec-30
1,46
3,19
2,95
3,39
3,04
3,50
1,87
2,16
1,93
2,22
15-Dec-31
3,21
15-Dec-32
0,80
2,04
2,35
15-Dec-33
2,10
2,42
15-Dec-34
2,16
2,49
15-Dec-35
2,77
3,19
8,6%
11,2%
YTM
14,9%
18,2%
34,5%
11,9%
1,15
14,3%
24,7%
34,5%
Depth & Liquidity of Carry Trade Candidates Is Improving Quickly

Last week, Argentinas Treasury began auctioning off BONAR 18 peso bonds offering a spread over
BADLAR of 275bps and BONAR 2020 peso bonds offering spreads of 325bps over BADLAR. The
government sold ARS12bn out of a total program targeting ARS20bn (US$1.33bn) of each security. These
bonds will offer an attractive alternative for EM local debt funds that are looking to take advantage of the
carry trade in Argentina. These variable rate bonds, hedged with NDFs, would provide strong net USD
returns only if the BADLAR rate remains elevated and the 3.69% spread over BADLAR narrows under
3.0%, both conceivable bets but by no means a sure thing. In addition, these bonds are variable rate
securities priced off the BADLAR curve, which is tied to 30-35 day term deposit rates, and the healthy
spreads over the benchmark would become more valuable if Argentinas inflation and country risk decline
in the next 18 months. The LEBAC fixed rate curve underwent a violent upward shift with Tuesdays
auction, but the majority of the liquidity is found in the shorter durations of 35-147 days. In the table
below, we provide the outputs from our bond calculators on the Bonar 2020 securities.
_______________________________________________________________________
16
BONAR 2020 Carry Trade Hedged With NDFs: Badlar Rates Need To Stay High With Spread Compression
Spread
3,69%
1st Payment
Badlar
26,60%
26,60%
26,60%
26,60%
26,60%
Next Payments
Badlar
26,65%
30,00%
22,00%
20,00%
18,00%
1,00%
12,9%
15,3%
9,7%
8,3%
6,9%
YTM in dollars with differents Spread in one year

2,00%
3,00%
3,69%
4,00%
11,1%
9,3%
8,1%
7,6%
13,6%
11,9%
10,7%
10,2%
7,7%
5,9%
4,6%
4,0%
6,3%
4,4%
3,1%
2,5%
4,9%
2,9%
1,6%
1,0%
5,00%
5,9%
8,6%
2,3%
0,7%
-0,9%
LEBAC Simulations Show Strong Return Profiles On Short Duration Paper

Under the prevailing yield curve and dollar futures rate structures, the most profitable opportunities at
the moment are to be found in the LEBACs with maturities ranging from 35days to 98days. We provided
two simulations that show enhanced returns if the LEBACs are bought directly in the weekly Tuesday
auctions vs. still attractive, albeit lower, returns if the bonds are bought in the secondary market. The
March/Mid-May time frame will be an active time for LEBAC auctions to roll over 76% of the stock or
ARS334bn (~US$20bn). We think this will be a fertile time to build positions in increasing liquid primary
and secondary markets.
LEBAC Effective USD Yields Using Auction Prices
Lebac + Rofex
Days
35
63
98
119
147
203
252
Effective
Yield
2,72%
2,96%
3,35%
2,91%
2,54%
-0,89%
3,52%
Nominal
Effective
Annualized Yield Annualized Yield
28,3%
32,3%
17,1%
18,4%
12,5%
13,0%
8,9%
9,2%
6,3%
6,4%
-1,6%
-1,6%
5,1%
5,1%
LEBAC USD Prices Using Secondary Market Prices

Lebac + Rofex
Days
28
56
98
Effective
Yield
1,76%
2,24%
2,60%
Nominal
Effective
22,9%
25,5%
14,6%
15,5%
9,7%
10,0%
Lebac + NDF
Days
35
63
98
202
Effective
Yield
2,08%
2,11%
2,10%
1,30%
Nominal
Effective
21,6%
23,9%
12,2%
12,8%
7,8%
8,1%
2,3%
2,4%
Lebac + NDF
Days
28
56
98
Effective
Yield
1,12%
1,39%
1,36%
Nominal
Effective
14,6%
15,7%
9,1%
9,4%
5,1%
5,2%
ROFEX Futures & NDFs Are Now Trading Roughly In Line With One Another
Argentinas 12M NDF is currently trading at 19.02, implying a 25.7% slide in the ARS. The 9M NDF is
offered at 18.11 or a 25.5% implied yield that nearly matches the trajectory embedded in the 12M NDF.
The 6M NDF is now at 17.1, implying a lower annualized depreciation pace of 24.4%. In the chart below,
we show the ROFEX Futures curve with the implicit rates. The longer end of the curve from August to
December are implicitly offering 25.1% (August) to 25.4% in December. Accordingly, we can infer that
over the next year, local investors can lock in ARS hedges at 24%-26% while local bonds coming to market
_______________________________________________________________________
17
should offer effective yields of 32%-38%. We believe that annualized dollar returns of 12%-13% are much
more attractive than the 6.43% YTM offered by the BONAR 2017 USD bonds and the 6.85% YTM that
currently prevails for the BONAR 2020 USD bonds.
Rofex & NDF Curves Based on Contract Prices
Rofex & NDF Implied Forward Yields
_______________________________________________________________________

Finanzas Argentinas

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Finanzas Argentinas

Uploaded by

Copyright:

Available Formats

1

Crowding Out Could Maintain Rates High Throughout The Year

Stock of LEBACs in Circulation: $451.855 billion

LEBAC Auction History

Make No Mistake: This Rate Hike Is Recessionary In The Near Term

Picture Book of Argentina Economic Activity: Bad to Worse But Perhaps

UTDT Inflation Expectation: +500 Bps.

Industrial Activity FIEL: -0.6%

Breakdown by Type Asset: -16.6% Capital G

General Economic Activity O. Ferreres: -1.9%

Argentina Trade Balance

Date Last Price Exports YoY

Crude Steel Production Index: -11.8% In January

Steel Production - Argentina

Argentinas Vehicle Export Markets

Banking System Pictures: Loan Growth Stalling

January 2nd, 2010 = 100

Overdrafts Rate ARS (right axis)

Large skew of recession and

GDP Three consecutive years or more of >3% GDP growth

EUR - Engl. Law (TVPE)

ARS - Arg. Law (TVPP)

ARS 10,60 / USD 0,68

GDP Warrant GDP Scenarios

GDP Grow th (%)

GDP Grow th (%)

GDP Grow th (%)

Depth & Liquidity of Carry Trade Candidates Is Improving Quickly

YTM in dollars with differents Spread in one year

LEBAC Simulations Show Strong Return Profiles On Short Duration Paper

LEBAC USD Prices Using Secondary Market Prices

Rofex & NDF Implied Forward Yields

You might also like