of Argentina dollar-denominated government bonds It continues to rise, fully reflecting the market’s optimism after Javier Millay’s big electoral victory and the new political scenario. However, the new expectations of the market pave the way for a strategy of exchanging one title for a similar title in order to obtain greater profitability, as not all titles will progress at the same rate.
of Bonales (“AL”); Dollar-denominated Argentine bonds, which are governed under local law, trade at significantly lower prices than global (“GD”) securities, which have the advantage of being governed under U.S. law. In recent cases, Bonales prices were 4% to 5% lower than global prices.
This gap has existed for a long time October electionbut it is surprising that even now, two weeks after that event and with very positive results from an investor’s perspective, this system is still in effect. Improvements in expectations should quickly close that gap. As long as that happens, global bondholders will be able to switch to Bonales to benefit from the expected correction in Bonales’ favor.
Global prices are usually Bonales Because it has the added benefit of being protected by US law. In the event of default by the debt issuer (the Argentine government), holders of the global bonds will be able to pursue claims in US courts, while local law enforcement will work with the Bonales family.
Why should the price gap close?
Towards the improvement of Market expectations. When financial tensions rise, investors tend to demand more (or sell fewer) global bonds than Bonales bonds. This is because global bonds are safer due to legal regulations, which widens the gap between the two.
On the other hand, as the financial environment improves, demand for global companies tends to decline. Bonalesthe price difference will be smaller.
The spread or gap is reduced; Bonales There are several reasons for this. Mr Milais’s landslide victory in October’s parliamentary elections has removed the political risk, leaving the government with free access to up to US$20 billion in swaps it signed with the US, which it can trigger to meet its commitments over the next two years, even though it does not yet have sufficient reserves or access to international markets to pay its next debt maturities in foreign currency.
exchange these dollar bonds for something else
Consulting firm 1816 believes short-term dollar-denominated Argentine bonds, such as those due 2030, exhibit “excessive” spreads, given the “significant improvement in financial conditions in recent weeks.” Therefore, the following holders: global bonds The Bonales Act, which expires in 2030, has been suggested to be sold to create parity with local laws, which expire in the same year.
At the end of Friday Global 2030 (GD30) The price on the local market was $66.85, and the Bonales 2030 (AL30) was $64. These prices mean the spread or gap between the two is approximately 4.5%. During times of good local economic conditions, the price difference between both titles is usually much smaller, or virtually zero, as happened earlier this year.
By moving from Globales to Bonales, investors will “Cost overrun” This is because there is greater legal protection (hardly needed in situations of larger trusts) and for the same amount of money you can get more nominal money than other rights of the same nature (excluding the law). If the expected price difference reduction is then achieved, the investor wins. This usually favors the bonuses.
Legal price differences remain high in other sectors as well. maturity curve. As of Friday’s close, the difference between the GD29 and AL29 titles in the local market was 5.2%. For GD35 and AL35, it was 3.5%, the same difference that Global 2038 (GD38) marked against Bonares (AE38), which expires in the same year. The gap between GD41 and AL41 was small, “barely” 2%.
Moderate strategy, but good returns in dollar terms
this is not a strategy Deterioration of profitsHowever, operators typically see it as an opportunity given the revenue they receive each time the law’s adoption is expected to decline. Similarly, in addition to bond rotation, they believe that new dollar-denominated flows into Argentine bonds currently make more sense to be placed in Bonales bonds than in global bonds.
Argentina’s financial assets generally remain strong Good bullish outlook. Market analysts estimate that dollar bonds, like stocks, still have room to continue rising in the medium to long term, although a short-term downward correction is possible after the historic rally that occurred during election celebrations.
About The Author
