On account of the rate hike, yields on US bonds grow and the future of Argentina is more complicated

The head of the US Federal Reserve, Jerome Powell Jul 15, 2021. REUTERS / Kevin Lamarque /

The Government has transformed a strategy into a system that, despite its failure, continues to repeat itself. In every negotiation with the outside, he tries to buy time. It did it to get out of default and today the bonds that were issued after a bad negotiation – if they had closed earlier the rate would have been lower – are trading at just over half their original value.

Something similar happens with the IMF. The delay in the plan to present to the international organization finds Argentine negotiators the end of the honeymoon of subsidies from the Federal Reserve that will not only stop buying Negotiable Obligations from North American companies, but also announced that it will raise rates of interest. The market estimates seven rises in two years. So on Friday, the 10-year US Treasury rate soared to 1.77%. In one month they rose more than 40 points. Last December 3 they yielded 1.34%.

The move implies that the world will see the dollar strengthen and the price of raw materials fall. All the calculations that Argentina made on the dollars that it is going to collect from exports and the level of reserves must be reviewed.

In search of refuge

In fact, it was no accident that world investors sought refuge in gold, which rose 0.44% to $ 1,797 per troy ounce on Friday. Local investors took note of the movement and country risk increased 15 units (+ 0.8%) to 1,801 basis points due to another sharp drop in foreign debt bonds.

The delay in the negotiations with the IMF complicates the panorama
The delay in the negotiations with the IMF complicates the panorama

So far this year it has not stopped climbing a single day. The country risk had ended 2021 at a level of 1,681 basis points and, from that moment until today, increased 120 points (+ 6.70%). It is 20 points away from the post-default record that it reached in early November when it reached 1,821 basis points. The country risk, the day before exiting the default, was at 2,120 basis points.

To send signals that it is working in the direction that the IMF wants, the central bank raised local rates, which makes its domestic debt dangerously expensive. The rise was 2 points but even so, it left the rates negative against inflation and without a positive response from the markets since the dollar continued to rise, devaluation expectations remained high and the value of the bonds increased They index for the cost of living by up to almost 1 percent.

Entrepreneurs and investors found a poor response from the Minister of Economy, Martin Guzman, of how the negotiation with the IMF will be faced.

Falling stocks on the New York Stock Exchanges are not a good sign for Argentina or emerging markets. The world went from the pandemic to a transition that confuses it because the economy will have to function with fewer subsidies and a higher cost of money. In these situations, capital leaves emerging markets and Treasuries begin to vacuum that money for higher yields.

Faced with this scenario, businessmen and investors found a poor response from the Minister of Economy, Martin Guzman, of how the negotiation with the IMF will be faced. Until now, the only instruments that have shown signs of going in a direction approximate to what the IMF wants, is the increase in rates and the acceleration of the devaluation. In the past week, the wholesale dollar had the biggest rise in recent months: it rose 56 cents to $ 103.29. In this way, the devaluation rate doubled to 8 cents a day and the anchor was left behind. On Friday it bought USD 80 million and sacrificed importers because it needed to deposit the coupon dollars of the AL30 and GD30 bonds. In this way, reserves suffered a fall from USD 344 million to 39,121 million.

The outlook has worsened and the government will have to speed up negotiations with the IMF and change its pretensions of not reducing spending, because if uncertainty continues, it will be like navigating blindly in a world that does not want to take risks.



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