Argentina is planning to sell as much as $1 billion of dollar-linked bonds next week after issuing similar notes less than a month ago.
Argentina is issuing debt in the local market as it steps up efforts to bolster the peso, which has weakened 23 percent this year, the most in emerging markets after the Russian ruble.
The notes will allow the government to finance the deficit in part through the local market, instead of through central bank transfers, which increase the money supply and weaken the peso, according to Jorge Podesta, a fixed-income analyst at Allaria Ledesma y Cia.
“It’s very healthy, and we think it will be positive, that the government is issuing bonds to finance the deficit,” Podesta said by phone from Buenos Aires. “It reduces the pressure on the peso.”
The government plans to sell $500 million to $1 billion of dollar-linked bonds on Nov. 13, according to an e-mailed statement from the Economy Ministry.
The bonds will be denominated in dollars and pay in pesos at the official exchange rate, with annual interest of 2.4 percent. The notes will absorb excess pesos from investors who buy the securities, supporting the local currency, Podesta said.
Argentina sold $983 million of dollar-linked bonds due 2016 with a 1.75 percent coupon on Oct. 23, the first time it issued that type of security in at least a decade.
Currency Controls
The government is selling bonds as central bank President Alejandro Vanoli, appointed Oct. 1 to replace Juan Carlos Fabrega, clamps down on the illegal foreign-exchange market and the blue-chip swap, where investors exchange peso securities for dollar counterparts abroad to circumvent currency controls.
Argentine officials are stepping up efforts to strengthen the peso as part of an effort to curb the slide in international reserves, which last month dropped to a six-month low of $27.3 billion.
The peso in the official market, which is subject to central bank intervention almost daily, weakened 1.2 percent in the past two months to 8.5075, almost half the pace of the decline during the previous 60 days.
The peso in the black market has strengthened 19 percent since tumbling to a record low 15.95 per dollar on Sept. 24.
“It helps the central bank in its effort to absorb pesos,” Explorador Capital Management LLC’s Fernando Jasnis said in a telephone interview from Buenos Aires.
Pressure on the peso will continue because the amount of debt issued by the government isn’t enough to meet its financing needs, Mauro Roca, an economist at Goldman Sachs Group Inc., wrote in an Oct. 31 report.
‘Exchange Pressures’
“While central bank monetization remains the main source of government financing, inflationary and exchange pressures will continue to increase,” Roca said.
The South American nation has been locked out of international credit markets since its record $95 billion default in 2001.
On a 12-month accumulated basis, Argentina’s fiscal deficit has approached 5 percent of gross domestic product, 56 percent of which was financed with direct transfers from the central bank, fueling inflation of about 40 percent, according to Goldman Sachs.
The Argentine bond sale is the nation’s fourth issuance in local markets this year. Beside last month’s dollar-linked bond sale, the nation sold 10 billion pesos ($1.2 billion) of two-year bonds in September and 5.5 billion pesos of three-year bonds in March.
Dollar-linked bonds are a good alternative for local investors who can’t buy dollar assets and are seeking to protect themselves against a decline in the peso, according to Jasnis. “It’s an option for investors who want to dollarize their portfolios,” Jasnis said.
bloomberg.com
Argentina is issuing debt in the local market as it steps up efforts to bolster the peso, which has weakened 23 percent this year, the most in emerging markets after the Russian ruble.
The notes will allow the government to finance the deficit in part through the local market, instead of through central bank transfers, which increase the money supply and weaken the peso, according to Jorge Podesta, a fixed-income analyst at Allaria Ledesma y Cia.
“It’s very healthy, and we think it will be positive, that the government is issuing bonds to finance the deficit,” Podesta said by phone from Buenos Aires. “It reduces the pressure on the peso.”
The government plans to sell $500 million to $1 billion of dollar-linked bonds on Nov. 13, according to an e-mailed statement from the Economy Ministry.
The bonds will be denominated in dollars and pay in pesos at the official exchange rate, with annual interest of 2.4 percent. The notes will absorb excess pesos from investors who buy the securities, supporting the local currency, Podesta said.
Argentina sold $983 million of dollar-linked bonds due 2016 with a 1.75 percent coupon on Oct. 23, the first time it issued that type of security in at least a decade.
Currency Controls
The government is selling bonds as central bank President Alejandro Vanoli, appointed Oct. 1 to replace Juan Carlos Fabrega, clamps down on the illegal foreign-exchange market and the blue-chip swap, where investors exchange peso securities for dollar counterparts abroad to circumvent currency controls.
Argentine officials are stepping up efforts to strengthen the peso as part of an effort to curb the slide in international reserves, which last month dropped to a six-month low of $27.3 billion.
The peso in the official market, which is subject to central bank intervention almost daily, weakened 1.2 percent in the past two months to 8.5075, almost half the pace of the decline during the previous 60 days.
The peso in the black market has strengthened 19 percent since tumbling to a record low 15.95 per dollar on Sept. 24.
“It helps the central bank in its effort to absorb pesos,” Explorador Capital Management LLC’s Fernando Jasnis said in a telephone interview from Buenos Aires.
Pressure on the peso will continue because the amount of debt issued by the government isn’t enough to meet its financing needs, Mauro Roca, an economist at Goldman Sachs Group Inc., wrote in an Oct. 31 report.
‘Exchange Pressures’
“While central bank monetization remains the main source of government financing, inflationary and exchange pressures will continue to increase,” Roca said.
The South American nation has been locked out of international credit markets since its record $95 billion default in 2001.
On a 12-month accumulated basis, Argentina’s fiscal deficit has approached 5 percent of gross domestic product, 56 percent of which was financed with direct transfers from the central bank, fueling inflation of about 40 percent, according to Goldman Sachs.
The Argentine bond sale is the nation’s fourth issuance in local markets this year. Beside last month’s dollar-linked bond sale, the nation sold 10 billion pesos ($1.2 billion) of two-year bonds in September and 5.5 billion pesos of three-year bonds in March.
Dollar-linked bonds are a good alternative for local investors who can’t buy dollar assets and are seeking to protect themselves against a decline in the peso, according to Jasnis. “It’s an option for investors who want to dollarize their portfolios,” Jasnis said.
bloomberg.com
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