“Milei peace and love”? Analysts explain what it takes for Argentine bonds to succeed

The election of Javier Milei to the presidency of Argentina on Sunday (19) made investors once again look for opportunities in the country given the positive reaction of the markets. On a local holiday and without a Stock Exchange session there, attention turned to assets traded abroad.

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Among the highlights was the appreciation of fixed income assets, with sovereign bonds in dollars (bonds) jumping to the highest price in two months, in the case of paper maturing in 30 years, which reached US$0.312.

The bonds are still trading far from their highs, but have been appreciating in recent weeks. “Bonds are 10% above the first round, and 10% above Friday’s closing”, pointed out Daniel Marcatto, partner and senior analyst at Exploritas, in an interview with Radar InfoMoney (check the full text at the top of the article).

Argentine bonds have become an option for investors with a greater risk appetite due to the high promised remuneration. Depending on the role, the investment may yield up to 30% in 1 yearentitled to interest that includes a high risk premium, added to the appreciation of depreciated assets.

“The amortization plus interest means that the investor has an expected return of one third of the amount invested”, calculates Daniel Delabio, manager at Exploritas.

There was, however, uncertainty among experts regarding the behavior of the shares due to Milei’s challenging stance towards the conventions of the economic world. But the first gestures of the new Argentine president were well received.

In an interview this Monday morning (20), Milei stated that his priority will be to initiate State reform and seek a solution to the Leliq problem, bonds issued by the Central Bank, a debt whose rollover strangles the BC.

Milei’s behavior is seen as crucial to the performance of sovereign roles. At Gauss Capital, manager of the Gauss Zaftra multimarket fund, focused on elections, the decision to set up fixed income positions or not depends on the commitment or not of the president-elect to pay the debt.

In this sense, for Fabio Okumura, CIO and founding partner of Gauss Capital, some stocks may be interesting because they are already pricing in a default (default).

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Among Exploritas’ preferred bonds are those maturing in 2037, which pay just over 7% per year in dollars, among others bonds sovereigns of Argentina or large provinces, such as Buenos Aires and Córdoba. Around 9% of the fund’s assets are invested in these securities.

According to Delabio, market liquidity (around 20 times greater than that of the Argentine stock exchange), the guarantees of the most recent bonds and prepayments (amortizations) help to make the neighboring country’s fixed income a little safer – or less risky.

“In the title, there is an obligation to pay, which may or may not be fulfilled. In action, there is no such thing. The market for bonds Argentines is gigantic, worth more than US$ 100 billion. Some bonds of provinces are guaranteed by revenue from royalties”, says the manager.

Unlike Brazil, where only the federal government can issue bonds, in Argentina subnational entities – such as provinces – can also.

For those who want to invest in the global market of bonds With exposure to Argentina’s risk and premium, the broker Invertir Online highlights sovereign bonds maturing in 2035. These bonds have lower interest rates, just under 2%. But, as they are also discounted, they should deliver a return of 25% in dollars next year.

“The objective is to start building a hedge against the exchange rate in view of the uncertain scenario that presents itself for December this year [após as eleições]”, according to a report from the Argentine manager.

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