8/19/2019 Finanzas Argentinas
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
Balanz Flash March 3, 2016
Argentina Strategy Update: The BCRA Roars & The Market Flinches
The BCRA’s 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 BCRA’s 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 country’s
long-term growth track record. Since 1980, Argentina’s 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 in-
depth report. A big driver of warrant outperformance is the cost of capital, but the decline in
country-risk is not helping Argentina’s 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.
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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 Future’s 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 BCRA’s rate hike. We believe that
this market expectation was becoming “overcooked” and indirectly reflected the market’s 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 throughadditional 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 Tuesday’s 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 BCRA’s LEBACs over the next few months (see chart below). The local institutional investor market
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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%
Argentina’s 12M NDF
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
LEBAC Auction History
Make No Mistake: This Rate Hike Is Recessionary In The Near TermOur 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
FIEL’s industrial index dropped -0.6%. Consumer confidence dropped -9.7% yoy and -15.6% mom including
a -24.5% freefall in current expectations. February’s 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
TemporaryBefore we summarize and comment on the following picture book of charts illustrating the trends in
today’s 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 Macri’s 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 notwavered, but Maurcio Macri’s 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.
Monto (MM) $ 50.205 Monto (MM) $ 47.078 Monto (MM) $ 57.733 Monto (MM) $ 32.849 Monto (MM) $ 34.564
Días Tasa Días Tasa Días Tasa Días Tasa Días Tasa
35 30,5005% 35 30,2498% 35 30,4994% 35 31,1461% 35 37,0002%
63 29,5001% 63 29,2488% 63 29,5001% 63 30,0003% 63 34,4998%
98 28,8001% 98 28,4998% 99 28,4997% 98 29,1951% 98 32,9994%
119 27,9999% 119 27,6000% 119 27,9999% 119 28,5000% 119 31,5000%
147 27,9799% 147 27,7790% 147 27,0000% 147 28,1500% 147 31,1499%
203 28,0000% 203 27,7400% 203 27,2500% 203 28,2000% 203 28,0000%
252 27,9999% 252 27,7400% 252 27,5000% 252 28,6000% 252 31,5363%
Monto (MM) USD 774 Monto (MM) USD 1.235 Monto (MM) USD 581 Monto (MM) USD 1.048 Monto (MM) USD 383
Días Tasa Días Tasa Días Tasa Días Tasa Días Tasa
35 1,4997% 35 1,2498% 35 1,0000% 35 0,8997% 35 0,8997%
91 1,5001% 91 1,0000% 91 1,0000% 92 0,8999%
01/03/2016
LICITACION EN PESOS
LICITACION DOLARES
LICITACION EN PESOS
LICITACION DOLARES
23/02/2016
LICITACION EN PESOS
LICITACION DOLARES
10/02/2016
LICITACION EN PESOS
LICITACION DOLARES
16/02/2016
LICITACION EN PESOS
LICITACION DOLARES
02/02/2016
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
Underlying February Tax Collection Numbers Spotlight Big Deceleration In Consumption
The AFIP (Argentina’s 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 Kicillof’s reign as Finance Minister, and Macri’s economic team has reopened t his
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 Macri’s 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 country’s tax revenue, and this simply is not the case at the moment.
YoY Growth Rates IVA DGI vs IVA Overall
UTDT – Inflation Expectation: +500 Bps. Industrial Activity – FIEL: -0.6% Breakdown by Type Asset: -16.6% Capital G
Di Tella’s 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.
Feb 22,2% 34,3%
Jan 24,5% 36,1%
Dec 32,5% 4,0%
Nov 35,7% 30,1%
Oct 38,4% 33,1%
Sept 38,2% 30,9%
Aug 42,4% 39,2%
Jul 31,1% 28,3%
Jun 42,9% 34,2%
May 34,8% 25,9%
VAT
OverallVAT DGIDate
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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 FIEL’s industrial index dro pped -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%
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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 has declined -13.65%,-14.3% and -11.84% in the last three months, spotlighting
weakness in the automotive industry and durables.
Date ast Price Imports YoY Date st Price Exports YoY
31/12/2015 4521 0,7% 31/12/2015 3411 -25,4%
30/11/2015 4741 -0,5% 30/11/2015 4000 -24,2%
31/10/2015 4951 -10,4% 31/10/2015 5205 -12,8%30/09/2015 5546 0,8% 30/09/2015 5611 -6,7%
Argentina Trade Balance
Date Last Price YoY (%)
31/01/2016 350 -11,84%
31/12/2015 372 -14,29%
30/11/2015 405 -13,65%
31/10/2015 469 -1,68%
30/09/2015 446 -3,67%
31/08/2015 474 -1,04%
31/07/2015 431 -6,71%30/06/2015 445 6,71%
31/05/2015 411 -8,46%
Steel Production - Argentina
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
Argentina Vehicle Exports: Deep decline in the exports // Brazil accounts for 72% of Exports.
Argentina’s Vehicle Export Markets
Argentina’s 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.
Date Export YoY (%)
29/02/2016 14178 -41,47%
31/01/2016 3888 -48,98%
31/12/2015 10961 -62,26%
30/11/2015 18599 -52,44%
31/10/2015 18834 -48,70%
30/09/2015 21853 -27,33%
31/08/2015 21355 -22,18%
31/07/2015 21817 -9,42%30/06/2015 28218 -18,01%
31/05/2015 22454 -25,48%
Argentina Vehicle Exports
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
Argentina’s 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
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
1
1
1
1
1
1
J a n - 1 3
A p r - 1 3
J u l - 1 3
O c t - 1 3
J a n - 1 4
A p r - 1 4
J u l - 1 4
O c t - 1 4
J a n - 1 5
A p r - 1 5
J u l - 1 5
O c t - 1 5
J a n - 1 6
J a n u a r y
2 n d ,
2 0 1 0 = 1
0 0
Loans/Deposits Ratio Overdraf ts Rate ARS (right axis)
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
The banking industry’s sustained growth trajectory is starting to slow. Compared to other banking
systems, Argentina’s 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 Macri’s 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 Argentina’s 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 thecurrent interest rate backdrop in Argentina. We would take profits in the TVPPs, and we would rotate
from the TVPY’s to the TVPE’s 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
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
Argentina’s Long Term GDP Track Record Marked By Volatility & Frequent Recessions
While there are manifold reasons to be optimistic about Argentina’s GDP growth outlook post 2016, for
GDP warrant holders, it is important to take a walk down memory lane and examine Argentina’s 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. Argentina’s new government is implementing many of the right policies, but Argentina’s future
growth trajectory will require help from the global economy and a sea change in inflation levels and fiscal
policy.
Argentina’s GDP – Normal Distribution (High Incidence of Recessions/Slow Growth)
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 throughouthistory Argentina has been able to grow four consecutive years at 4% or higher. A highly bullish trade in
the warrants presupposes that this Argentina’s 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.
Large skew of recession and
slow growth years
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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
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 Argentina’s cost of capital. The
USD sovereign bond yields have fallen 150-170bps across the sovereign curve since we published our in-
depth September 11th report, Time to Get Back Into The GDP Warrants? We think So. The TVPY’s
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 questionablegiven that Argentina’s 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. Argentina’s 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
Mean 0,033
Statitical error 0,005
Median 0,042
Standard Deviation 0,053
Variance 0,003
Curtosis 0,222
Skewness -0,184
Range 0,307
Min -0,108
Max 0,199
Suma 3,731Sample 113
Conf idence Leve l( 95% ) 0,010
Descriptive Statictics
p(X>3)=1-p(X
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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 YTMsin 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 Argentina’s 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.
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
Residual Value
GDP Warrant GDP Scenarios
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
Warrants
GDP % Trigger
Year Year Year
3,0 2016 2016 2016
3,0 2017 2017 2017
3,0 2018 2018 2018
3,0 2019 2019 2019
3,0 2020 2020 2020
3,0 2021 2021 2021
3,0 2022 2022 2022
3,0 2023 2023 2023
3,0 2024 2024 2024
3,0 2025 2025 2025
3,0 2026 2026 2026
3,0 2027 2027 2027
3,0 2028 2028 2028
3,0 2029 2029 2029
3,0 2030 2030 2030
3,0 2031 2031 2031
3,0 2032 2032 2032
3,0 2033 2033 2033
3,0 2034 2034 2034
Scenario IIIScenario IIScenario I
1,0
GDP Grow th (%) GDP Grow th (%) GDP Grow th (%)
1,0
3,0
3,0
1,0
1,0
1,0
4,5
3,0
5,0
3,0
1,0
3,5
3,0
1,0
3,5
4,0
3,0
1,0
2,0
3,0
5,0
4,0
2,0
3,01,0
1,0
3,0
3,0
1,0
3,0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
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Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
GDP Trigger Payment Schedules On Three GDP Scenarios
Depth & Liquidity of Carry Trade Candidates Is Improving Quickly
Last week, Argentina’s Treasury began auctioning off BONAR 18 peso bonds offering a spread overBADLAR 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 Argentina’s inflation and country risk decline
in the next 18 months. The LEBAC fixed rate curve underwent a violent upward shift with Tuesday’s
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.
Date TVPY TVPE TVPP TVPY TVPE TVPP TVPY TVPE TVPP
03-Mar-16 -11,58 -10,94 -10,60 -11,58 -10,94 -10,60 -11,58 -10,94 -10,60
15-Dec-16 - - - - - - - - -
15-Dec-17 - - - - - - - - -
15-Dec-183,00 3,46 23,14 - - - 3,00 3,46 23,14
15-Dec-19 3,46 3,99 1,45 2,72 3,13 23,84 3,09 3,56 1,45
15-Dec-20 3,76 4,33 - 3,18 3,66 0,76 - - -
15-Dec-21 3,87 4,46 - 3,47 3,99 - - - -
15-Dec-22 - - - 3,57 4,11 - 2,77 3,19 -
15-Dec-23 3,78 4,36 - - - - - - -
15-Dec-24 3,90 4,49 - 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 - 2,95 3,39 - - - -
15-Dec-29 - - - 3,04 3,50 - 1,87 2,16 -
15-Dec-30 1,46 - - - - - 1,93 2,22 -
15-Dec-31 - - - 3,21 1,15 - - - -
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 -
YTM 14,9% 18,2% 34,5% 11,9% 14,3% 24,7% 8,6% 11,2% 34,5%
8/19/2019 Finanzas Argentinas
16/17
16
_______________________________________________________________________
Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
BONAR 2020 Carry Trade Hedged With NDFs: Badlar Rates Need To Stay High With Spread Compression
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 Lebac + NDF
LEBAC USD Prices Using Secondary Market Prices
Lebac + Rofex Lebac + NDF
ROFEX Futures & NDFs Are Now Trading Roughly In Line With One Another
Argentina’s 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
1,00% 2,00% 3,00% 3,69% 4,00% 5,00%
26,60% 26,65% 12,9% 11,1% 9,3% 8,1% 7,6% 5,9%
26,60% 30,00% 15,3% 13,6% 11,9% 10,7% 10,2% 8,6%
26,60% 22,00% 9,7% 7,7% 5,9% 4,6% 4,0% 2,3%
26,60% 20,00% 8,3% 6,3% 4,4% 3,1% 2,5% 0,7%
26,60% 18,00% 6,9% 4,9% 2,9% 1,6% 1,0% -0,9%
YTM in dollars with differents Spread in one year
3,69%
Next Payments
Badlar
1st Payment
BadlarSpread
35 2,72% 28,3% 32,3%
63 2,96% 17,1% 18,4%
98 3,35% 12,5% 13,0%
119 2,91% 8,9% 9,2%
147 2,54% 6,3% 6,4%
203 -0,89% -1,6% -1,6%
252 3,52% 5,1% 5,1%
Days
Effective
Yield
Nominal
Annualized Yield
Effective
Annualized Yield
28 1,76% 22,9% 25,5%
56 2,24% 14,6% 15,5%
98 2,60% 9,7% 10,0%
Days
Effective
Yield
Nominal
Annualized Yield
Effective
Annualized Yield
28 1,12% 14,6% 15,7%
56 1,39% 9,1% 9,4%
98 1,36% 5,1% 5,2%
Days
Effective
Yield
Nominal
Annualized Yield
Effective
Annualized Yield
35 2,08% 21,6% 23,9%
63 2,11% 12,2% 12,8%
98 2,10% 7,8% 8,1%
202 1,30% 2,3% 2,4%
Days
Effective
Yield
Nominal
Annualized Yield
Effective
Annualized Yield
8/19/2019 Finanzas Argentinas
17/17
17
_______________________________________________________________________
Disclaimer : “This Report is for information purposes only. It is not intended to be a solicitation of
securities brokerage business or transactions.”
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