Argentine Finance Minister Sergio Massa announced a USD 1 bn Eurobond buyback.

The operation will focus on the short end of the curve, particularly the 2029 and 2030 global bonds.

The financing and timeframe of such an operation remains uncertain, but according to media reports the buybacks have already started. Minister Massa also suggested additional buybacks could follow the one announced.

We believe there is no chance Argentina will regain market access in the short term, and that the impact of the buyback on sustainability will be marginal.

2023 will be a crucial year given the presidential elections. Although the odds are against the incumbent party, opposition fragmentation provides them an opportunity.

While the soybean dollar allowed the central bank to increase the net FX reserve position by USD 3 bn, the external position is still fragile and we expect further import restrictions and capital controls in 2023.

Given that the inflationary tax is the only way the government can finance itself, we expect inflation to accelerate to 114% in 2023, from 99% in 2022 and 51% in 2021.

The central bank is increasing the money supply not only to finance the governm...

Sub-sovereign provincial credits have had a wide range of performances, with returns going from –21.1% to 19.9%. 

Córdoba has outperformed the rest of the provinces, in part thanks to its appealing upfront cash flow schedule. 

BUY:  We believe PDCAR 25 and PDCAR 26 are the most attractive options right now due to their high current yield which would provide some buffer to investors. 

The government has doubled down on its chaotic multiple exchange rate regime as it avoids an upfront devaluation at all costs.

With several exchange rates for several industries being constantly modified, it is almost impossible for business to do any long-term planning.

Inflation was 6.2% MoM in September, reaching 83.0% YoY.

We don't expect any major policy mea culpa from the government as it tries to muddle through until the elections. Thus, the macro conditions should get worse before they get better.

BUY: Bonds are still trading significantly below our expected recovery values making the name an attractive ...

The new “Soybean exchange rate” seems to have helped to achieve the government's goal of accumulating FX reserves. 

However, this policy has an issue that lags to appear: Further money printing.  

Although still difficult, they have narrowed the gap to the 3rd quarter FX reserves target. 

Inflation keeps accelerating, showing a 7.0% monthly print in August (78.5% YoY). 

We maintain our BUY recommendation given the extremely low prices. Within the curve, we prefer ARGENT 35 and 41, depending on the indenture. 

In July the trade balance recorded a deficit of USD 437 mn, the second month in a row with a negative balance.

Net reserves are at alarming levels, as we estimate them at USD 628 mn.

Inflation keeps accelerating, showing a 7.4% monthly print in July (71% YoY).

Although the measures announced seem insufficient to stabilize the economy, we believe the orthodox turn of the new economic team is positive for the country’s outlook.

BUY: Price stability in the last month has shown that the credits are reacting to the local news cycle and are not being driven by the fundamentals. 

The IMF agreement did not fulfill its destiny as the long-awaited positive catalyst that would stabilize the Argentinean macro, and the outlook continues deteriorating. 

The ruling party internal fights have intensified since the agreement, with VP Cristina Kirchner (CFK) gaining ground against President Alberto Fernandez (AF).  

The new economic Minister, Silvina Batakis, stated that she is willing to honor the IMF agreement, reducing the probability of a government radicalization. 

Argentina, although favored by improving terms of trade, hasn’t able to capitalize on the higher grain prices.&nbs...

The Minister of Economics Martin Guzman resigned last Saturday, further weakening the position of President Alberto Fernandez vis-à-vis his shrewd VP.  

The new minister, Silvina Batakis, is more politically aligned with VP Cristina Kirchner.  

We believe the probability of a regime change after next year’s presidential election increases with this decision.  

The positive mid-term election results in September 2021 and the IMF agreement in March 2022 were insufficient to boost bond prices due to negative investor sentiment towards the country. 

The recent domestic debt sell-off could affect the government’s financing options, particularly given an inflation rate that is pushing to a 30-year high of 60.7%. 

We analyze restructuring scenarios for 2024, finding that maturity extensions are likely but coupon or principal haircuts aren’t.  

We maintain our BUY recommendation as fundamentals justify higher prices if a more market-friendly party t...

Public approval of the Fernández administration is at its lowest level.

The future of the agreement with the IMF, and whether compliance with it continues or not, will shape the agenda for the new government taking office in 2024.

The Fernández administration is also under friendly fire, as Kirchnerism, headed by vice-president Cristina Kirchner, tries to sabotage the agreement with the fund.

BUY: Bonds are pricing an extremely aggressive restructuring, in our view underestimating the chances for a new market-friendly administration taking office in end-2023 and proposing a more friendly debt exchange. ...

Despite signing an EFF program with manageable targets, it looks like the government will not fulfill the quantitative performance criteria agreed with the IMF. 

The political stubbornness of the current administration will cause significant damage to the country’s economic outlook. 

The central bank is still unable to buy enough foreign currency and accumulate the so-needed FX reserves. 

BUY: The credit is attractive at current low prices, as they are discounting an extremely aggressive restructuring that is not entirely justified by solvency ratios, in our view.  

The Russian invasion boosted the grain prices, increasing the Argentina exports.

However, contractionary fiscal policies represent a downside risk for the agriculture output.

The government will still have to bear in mind the trade-off between increasing the tax burden to close the fiscal gap or driving up the sector to improve country’s exports.

Argentinian exports will be highly correlated to the grain prices on the international markets, which means a significant risk given their volatility.

BUY: We don’t see any positive catalyst in the short term, but low prices give an attractive risk/return profil...

We update and review the performance of bonds issued by the Province of Buenos Aires, the City of Buenos Aires, and the provinces of Córdoba and Mendoza. 

Performance has been broadly positive, with an average return of 1.2%, over the last 3 months and 14.7% over the last year. 

Overall, we continue to see value in the Argentinian subsovereigns and pick PDCAR 25 and PDCAR 26 as our favorites due to their upfront amortization schedules that help cover the initial investment before 2024, which could turn out a difficult year for Argentina. 

With the deadline approaching, the IMF-government agreement is about to be sent to the congress, where a harsh political battle is expected.

Given the restrictions imposed by the agreement, the treasury will have to find additional financing in the domestic market.

Nonetheless, because the central bank continues to increase the interest rate, domestic borrowing costs for the government have gone up.

BUY: At current valuations the bonds would provide an attractive total return even assuming an adverse scenario involving a 30% recovery value in Jan-2024.

With no elections over the year, the focus shifts to the negotiations with the IMF.

Despite the current administration wishes, the goal to accumulate a considerable amount of FX reserves seems very challenging.

We estimate the fiscal deficit to be reduced to 3.2% of the GDP from 4.1% in 2021 (or 3.1% if we account the SDRs allocation as revenues), partly due to the IMF target and partly due to the lack of financing.

BUY: Argentinian macro is a veritable disaster, but bonds trade at rock bottom prices which leaves little space for downside movement and significant room for gains.

We compare bonds issued by the Province of Buenos Aires, the City of Buenos Aires, Córdoba and Mendoza, four of the biggest sub-national entities in terms of GDP and population. 

Local credits offer an attractive reward with better fundamentals than the sovereign. 

We see Cordoba’s bonds as the most attractive in our review due to its low total debt and short maturity dates. 

BUY: We pick PDCAR 25 and PDCAR 26 as the most attractive options in the space because they repay the initial investment before 2024, a high-risk year for Argentinian sovereign debt. 

Argentina needs an agreement with the IMF before March to avoid a default with the international organism. 

We use Ecuador’s Extended Fund Facility to analyze the IMF’s priorities in recent programs. 

Argentina will have to cut its energy subsidies and focus the spending on those who need it most. 

We expect inflation to be leveraged by the government next year as part of a larger fiscal adjustment plan. 

BUY: Current prices offer significant upside potential while putting a cap on the downside.  

Dollar linked bonds offer a negative yield at the moment due to fears of a large depreciation in the short-term.  

We expect that the current exchange rate gap could push those bonds higher. 

With 98.84% of the votes counted, the opposition coalition (JxC) defeated the government (FdT) nationally by 8.4 points (41.97% to 33.57%).

For the first time since 1983, Peronism won’t have enough senators to reach quorum by itself.

The government will be forced to negotiate with either JxC or other third parties, both in the Senate and in the Chamber of Deputies.

Argentina Global bonds are now trading around 2% higher than Friday's close.

Authorities have continued tightening the capital controls established before the end of the previous administration. 

The central bank almost ran out of FX and has been trying to boost gross reserves by buying hard currency in the open market. Although net reserves stand at USD 6.5 bn, using a more conservative formula, which excludes “illiquid” items such as gold and SDRs, they are fast approaching zero and could even turn negative, though not for the first time. 

As IMF maturities are considerable in the near future (USD 10.2 bn between nov-21 and jun-22), an agreement is needed as soon as pos...

The fiscal deficit narrowed to 2% of GDP between January and August, from 5.6% in the same period of 2020. 

The narrowing of the fiscal deficit was partly due to the increase in tax revenues (export duties and VAT) and the reduction of assistance related to Covid-19. 

It is difficult for Argentina to grow its way out of its deficit, as we expect GDP to grow 8.3% this year after falling 9.9% in 2020, before deaccelerating to a mediocre 1.6% in 2022.

The main risk to our forecast is that the government could increase spending on social protection programs beyond what we expect as it tries to reverse its recent ele...

The opposition’s outperformance in the PASO elections continues to make waves in the Argentinian politics. 

12 ministers aligned with VP Cristina Kirchner resigned to their posts in the government, even if the President has so far not consented.  

There is also an ongoing scandal due to a leaked private audio in which a known Kirchner loyalist speaks extremely critically of both President Fernández and Minister Guzmán. 

On September 12, Argentina will go to the polls for this year’s open primaries to determine the final candidates for the November elections. 

Polls suggest a very tight result between the ruling-party candidate, Tolosa Paz, and the opposition candidate, Diego Santilli. 

We don’t believe that a ruling party victory would affect bonds much, as they are trading at very low levels. An opposition victory, on the other hand, would be bullish. 

The Buenos Aires Province reached an agreement with creditors ending a 16-month dispute. 

The exchange will have a recovery value of 49.2 for the A series, 41 for the B and 38.7 for the C at a 17% exit yield. 

Settlement is expected for September 3.  

The monetary base has grown 17.5% YoY, putting even more pressure on the already high inflation rate (51.7% YoY up to July). 

The government has been unwilling to cut subsidies to narrow its fiscal deficit, and we believe any policy change will have to wait until after the elections. 

Currency depreciation is the other major factor pushing inflation up. 

We update our macro forecasts and now expect an official depreciation of 27.4% in 2021, alongside a 49.3% inflation rate. 

BUY: Argentina received the USD 4.35 bn SDR disbursement from the IMF, which will boost liquidity in the short-term. Macro ...

Argentina offers an arbitrage trade between local and foreign market bonds.

The bonds also serve as an important role in the regulation of the FX market, reducing potential risk.

In our report “Just Ignore It Comes from Argentina” we argued that Argentinian corporative bonds at times offer attractive returns.

Now,  we broaden our focus to include other Argentina-based corporate issuers, as YPF and Pampa Energía.

We also include Petrobras and Petróleos Mexicanos as a way to compare.

Buenos Aires Province made a new offer, but for now, it is unclear the level of acceptance.

The fiscal deficit narrowed to 0.7% of GDP between January and May, from 3.3% in the same period of 2020.

The narrowing of the fiscal deficit was partly due to the increase in soybean prices and other commodities and the fact that some of the COVID-19 funds remain unused.

Export duties were the main driver behind the increase in tax collection during Jan-May 2021, mainly thanks to the rise of soybean prices and the recovery in exports.

EMFI Analytics expects a fiscal deficit of 3.8% of GDP in 2021, from 8.5% in 2020.

There are downside risks to our forecast, as the government could increase spending on social protec...

The Province of Buenos Aires (PBA) updated its offer to creditors.

Creditors replied with two new offers, but the province didn't accept and refused to make further concessions.

The massive pandemic-related liquidity injection started to push prices up in January, with inflation reaching 48.8% YoY in May.

Fernández’ administration has tried to control inflation through price controls and meat export bans.

Price controls have proved to be an ineffective tool, as inflation has accelerated this year for both regulated and unregulated products.

We expect inflation to end the year at 48.9%, as our base case scenario is that a tighter monetary policy will ease inflationary pressures during the H2-2021.

However, if the government increases fiscal spending as the legislative elections ...

International tailwinds favor Argentina and have allowed the central bank to achieve some relative stability in the exchange rate. 

We look into carry trades involving hard currency domestic bonds and inflation-linked bonds (BONCER). 

Over the last 6 months, BONCER 23 greatly outperformed the hard currency curves, posting a USD return of 15.2% thanks to a strong inflation adjustment on capital and relative stability in the exchange rate. 

Going forward, we expect high inflation and a relatively stable exchange rate in the l...

At just 10.8% of GDP, Argentina has a low tax ratio compared to other Latin American countries.

Tax revenues increased in 2020 despite the GDP drop thanks to the withdrawal of the 2017 tax reform.

However, the recovery in tax revenues should be temporary, as it has been achieved through a more distortive tax system.

The posterchild of distortive taxes is the newly implemented PAIS FX tax, which just generated 0.5% of GDP in 2020, and is already decreasing in real terms and as a share of GDP in 2021.

Fiscal data has been better than expected thanks to the recovery in commodity prices.

An opposition victory is n...

Pan American Energy issued a 9.125% coupon bond.

The company has strong fundamentals and offers an attractive yield in the actual context of low returns.

Mid-term elections are scheduled for November 14. Half of the seats in the lower house and a third of those in the Senate will be on dispute.

The ruling party currently has 46% of the Deputies and 57% of the Senators, but polling figures suggest that the opposition could outperform them this time around.

Results in the Buenos Aires Province will be in the spotlight, as losing in the mid-term elections usually precedes a loss in the presidential elections two years later.

BUY: We continue to like the optionality in ARGENT due to the limited downside at cheap valuations but regard the credit as a long-term play.

We emphasize three of the most relevant sub-sovereign issuers: the Buenos Aires province, the Autonomous City of Buenos Aires (CABA), and Mendoza.

HOLD: We consider Buenos Aires Province as a HOLD due to low cash prices relative to our expectation of recovery values.

BUY: We consider MENDOZ 29 as a BUY since the bond offers a high return despite strong fundamentals.

BUY: Compared with other provincial bonds mentioned above, BUEAIR 27 provides a higher yield than our assessment of the implicit risk.

The BCRA started financing the Treasury again in March through transitory overdrafts, after showing some restraint in Q4-2020.

Gross reserves have barely increased even though the BCRA has bought USD 3,028 mn in the FX market in the last four months.

The evolution of reserves is contingent on the debt negotiations with the Paris Club and the IMF.

Argentina will likely receive USD 4,355 mn at the end of August in a new SDR allocation, which will allow it to replenish international reserves and buy time for an agreement with the IMF and Paris Club.

BUY: The bond´s step-up coupon structure and the low debt servic...

The IMF expects Argentina to grow 5.8% this year, according to the latest WEO.

Vice-president Cristina Fernández said that a new default is not an option, even if she also added that repayment to the IMF under current terms is not possible.

The country is in the midst of a second COVID-19 wave.

The large spread between the parallel and the official FX rates eroded the trade surplus in 2020.

But it appears that Argentina lucked out, as commodity prices have shot up in Q1-2021.

The export recovery has given the Central Bank space to purchase dollars in the official market and replenish international reserves.

Looks like Fernández’ administration just found its ticket to arrive at the midterm legislative elections without a major FX crisis.

BUY: There are tangible catalysts (IMF, mid-terms) as 2021 progresses, and even though the market continues to be pessimistic on its expectations, we like the...

Rising agricultural commodity prices and the possible expected issuance of SDR has given the Fernandez administration a lucky break. 

FX Inflows have allowed the Central Bank to slow down the USDARS crawling peg rate. 

We look at how a stronger currency can improve fiscal deficit figures by lowering servicing costs of USD-linked securities. 

The mix of extremely low bond cash prices and tangible catalysts provide a good risk/reward setting with attractive optionality.

As bonds continue to slide, our thesis is reinforced, turning us even more bullish.

We stress test our thesis, by assuming that the next government – to be elected in late 2023 – restructures its commercial debt.

We analyse bond’s break-even recovery values. This is the recovery value that will give investors flat returns after facing a hypothetical restructuring.

Central Bank (BCRA) debt issuances are becoming an important source of monetary expansion.

In 2021, the BCRA will have to issue 41% of January’s monetary base (USD 11,981 mn) to pay interest on its monetary liabilities.

In January, net international reserves hit a new low, reaching just USD 3,667 mn, 69% lower than when Fernández started his mandate.

EMFI Securities expects inflation to climb to 48.9% this year (from 36% in 2020), at the expense of regulated prices, a higher spread between the official and parallel FX rate, repressed salaries and social security adjustments.

BUY: Despite poor signals fr...

We revised our Argentina Local Currency December strategy outlook, where we analyzed inflation linked and dollar linked bonds. 

ARS Inflation Linkers continue to be the only attractive securities to invest within the local currency universe. 

Inflation heated up in December, with a 4% m-o-m print (core CPI 4.9%) and we expect a 4.5% m-o-m print for January 

Given Central Bank signalling, we like the belly and the long-end, and especially like TC25 and DICP, which offer 8.5% and 7.29% real yields. 

The market is pricing a strong likelihood that Argentina will renegotiate the bonds again, possibly as soon as in 2024.

We computed the hypothetical returns if there is a renegotiation before the July 2024 payment date, and find ARGENT 41 as the most attractive option to play the scenario.

For a recovery value of 40%, an investor would earn an 8.6% return per year. The position would still be profitable for recovery values as low as 28.9%.

We also show bond sensibilities to yield curve movements, and find that ARGENT 30 maximizes exposure to yield compression over a 1-year holding period.

Overall, we favor ARGENT 41...

A creditor committee formed by Argentine sub-sovereign bondholders filed a claim in the United States District Court for the Southern District of New York seeking a judgment against Entre Rios 

ENTRIO 25 continues to trade in the 55c-60c range, regardless of the aforementioned suit or the lack of guidance given by the province on debt restructuring. 

We think that, considering its fiscal position, Entre Rios can offer a higher step-up coupon structure and the resulting recovery values of its new 2031 bond.

We remain positive that despite negotiations stalling, ENTRIO 25 trading at 58 is one of the best opportuni...

ARGENT and ECUA bonds have faced a rough patch, but only ARGENT seems to have touched rock bottom.

Caution is the path to follow with both curves, but ECUA has a lot more ground to lose in case of setbacks.

ECUA prices reflect uncertainty over the upcoming presidential elections, but a victory from Correísmo in the first round could push them further down.

ARGENT bonds face a myriad of challenges, but a low cash price and yields exceeding 15% more than compensate the risks

Negotiations with the IMF, the economic recovery, and Legislative elections will mark the course of Argentina’s performance in 2021.

Legislative Elections will be polarized between Frente de Todos and Juntos por el Cambio, with Frente de Todos holding a small lead.

Argentina will face gross financing needs of USD 56,884 mn (or 14.3% of GDP) this year; a big chunk of which comes from the service of local law debt.

HOLD: Expectations of an upcoming agreement with the IMF have deteriorated and sustainability indicators continue to deteriorate. Despite this, Argentina between 33 and 41 cents remains an attractive risk/r...

Emerging markets faced massive capital flight as a result of the COVID-19 crisis.

However, there has been debate as to whether the severe initial shock was primarily the result of an interruption in liquidity flows and not the deterioration of macroeconomic variables.

Growth in emerging economies may have taken a permanent hit but, at the same time, emerging markets could become more attractive to those hunting for yield.

We believe that the deepness of the impact of the pandemic on EMs can be quantified.

With 2021 just around the corner, only Neuquén, Mendoza, and Chubut have come to terms with their creditors. 

Santa Fe and Ciudad Autonoma de Buenos Aires (the municipality, not the province) managed to service their debt and scare the ghost of default away thanks to their low leverage and resilient fiscal balance. 

We looked at IMF guidelines in order to pinpoint a theoretical sustainable coupon level for the provinces that have not yet completed their restructurings 

Entre Rios and Rio Negro should be able to improve their offer, and would manage to close their restructuring closer to an NPV of 85&...

The primary fiscal gap continued widening during October, reaching 5.3% of GDP YTD, which is already the worst result since 2008.

Compared to our forecast, the 2021 budget is quite optimistic, as it underestimates expenditures and overestimates revenues.

EMFI Securities expects the primary deficit to reach 5.6% of GDP in 2021, while the overall fiscal gap will amount to 7.1% of GDP.

The low levels of monetization in early-2020 provided the way for increasing the money supply without a considerable inflationary impact.

BUY: With the expectation of an upcoming agreement with the IMF, Argentina trading between 30 and 4...

We analyze inflation linked bonds (CER Bonds) and the synthetic position constructed by combining dollar linked bonds and local non-delivery USDARS forwards.

The market (seen in the bond market breakeven inflation) is expecting that inflation will accelerate as lockdown measures start to ease and the money printing from Q1 and Q2 start to kick in.  

From the linker curve we like the short end and the belly of the curve, as we believe that a more hawkish stance from the central bank can undermine the returns of the longer duration bonds.

We like the synthetic that can be built by buy...

We take a comprehensive look at political risk indicators in a group of Emerging Market countries, trying to identify potential sources of conflict.

We analyze the electoral scenarios in the four Latin American nations that will have electoral processes during the end of 2020 and all of 2021.

We review the scenarios in the parliamentarians of Argentina and El Salvador, we comment on the electoral process that will take place in Venezuela, and we review the perspectives of the presidential elections in Ecuador.

We evaluated the World Bank’s governance indicators for our sample countries in 2019 and share our view of thes...

Inflation picked up in October after prices increased 3.8% MoM (from 2.2% on average until September), reaching an increase of 35.7% in YoY terms.

The increase in interest rates forms part of a set of measures that the government is taking to signal a more orthodox policy path.

We believe that it would be very challenging to pursue this set of measures since the government lacks political cohesion within the Peronist coalition to carry on with these policies.

BUY: We continue to believe that Argentina trading in the mid 30’s presents an attractive risk/reward, and we maintain our BUY for the credit

Scholarly research shows that domestic debt grew as a share of total debt in EMs during the first decade of the century, but defaults on domestic creditors still decreased significantly.

A default to domestic investors usually carries a higher political and economic cost than a default to foreign investors.

Domestic debt is usually concentrated in local financial institutions, such as banks, insurance companies and pension funds.

The primary fiscal deficit has reached record highs of 4.9% of GDP YTD, beating the record set during the first year of Macri’s administration in 2016.

The Central Bank financed the government by 6.8% of GDP, of which by 4.7% are in profit transfers and 2.1% through transitory overdrafts.

Monetary financing will cover 60% of the fiscal deficit in 2021 (-4.5% of GDP), and domestic debt will fill the rest.

The broad money will grow 55% by the end of 2021, which will result in inflation acceleration.

We continue to believe that Argentina trading in the 30 presents an interesting asymmetry, and we maintain our BUY...

Both Argentina and Ecuador have been underperforming after their restructuring, with Argentina suffering significantly more.

At this point, given the significant increase in the spread between both curves, we still think both credits are cheap, but find Argentina more attractive. 

In our view negative factors in Argentina such as a problematic official devaluation, inflation, increased strain on skinny reserve buffers are all already discounted in current prices.

On Argentina, we think much of the pessimist expectations on the Fernández administration’s policy-making are already priced in, leaving room f...

The strategy (or the lack of) for Argentina is to clench its teeth and hold until a new deal is struck with the IMF.

The main goal of Argentine authorities is to postpone the repayments of the USD 44 bn loan with the IMF.

The IMF will ask for a relaxation of capital controls and a normalization of the FX market, coupled with rules on monetary financing once the country leaves the worst part of the pandemic behind.

We believe that the Fund will allow for fiscal deficits in 2021 and a gradual convergence to a balanced budget in 2022/2023.

We upgrade Argentina to  BUY, and like the  New 35’s f...