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What to invest in if the dollar falls behind?


The best bonds to invest

The setback of the omnibus law leaves the market with low expectations, which led to a sharp drop in local assets. We can divide the market into two large sectors, the first being sovereign bonds in dollars and stocks, with strong declines due to lower growth expectations, difficulty in obtaining financing and greater efforts to achieve budget balance.

The second sector is bonds that adjust for the wholesale dollar, Bopreal and bonds in pesos that adjust for inflation. This second group did not have major losses, it would seem that they have strengthened for what is to come in the future.

The TX26 and TX28 bonds are two bonds in pesos whose technical value is $940 (Technical value is the nominal value of $100 plus the CER index run to date), and their market value is approximately $1,200, this implies that when If you buy these bonds, you pay an additional 27.7% for purchasing a title that adjusts for inflation and pays a rate of 2.0% per year in the case of the TX26, and 2.25% per year in the case of the TX28.

The premium paid is recovered very quickly, since for January an inflation of 23% is expected, and for February around 18%, whoever buys these securities will see the technical value grow along with the pace of inflation, which in turn Briefly, the purchase value will be equal to the technical value, which is what puts a floor on the title (it is what we are going to collect at maturity).

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The TX26 bond amortizes the equivalent of 20% of the technical value in 5 semi-annual and consecutive installments starting in November 2024.

The TX28 bond amortizes the equivalent of 10% of the technical value in 10 semi-annual and consecutive installments starting in May 2024.

These bonds will leave the investor a large flow of pesos updated for inflation every 6 months. They will have low market volatility, and you will charge a low rate in real terms, between 2.0% and 2.25% depending on the bond you choose.

The great attraction of these bonds is that Javier Milei’s government works to have an exchange rate that grows at a lower rate than inflation. For example, the Central Bank’s Market Expectations Survey expects an inflation of 229.0% for the year 2024, while the devaluation rate of the peso would be 122.4%, this implies that inflation in dollars would be 48.3% for the entire year 2024.

Investments in pesos adjusted for inflation

If we invest in instruments in pesos that adjust for inflation, we will be able to beat the wholesale dollar, but we will beat the dollar bill much more, if the gap disappears in the next 12 months.

Investment in instruments in pesos that adjust for inflation is a safeguard of value under the premise that Javier Milei’s program will have a low exchange rate, this implies that the wholesale dollar grows less than inflation, and the dollar bill increases less than the wholesale dollar.

We must not ignore the possibility of having very interesting fund flows in pesos every 6 months, which will be of great help to rethink other investments in the market.

These bonds today yield inflation minus an interest rate, since they are being paid above their technical value. If we do a flow of funds, the TX26 has a negative rate of return of 11.0% per year, and the TX26 has a negative rate of 7.0% per year.

The ideal thing to invest in is UVA fixed terms at 180 days adjusted for inflation plus a rate of 1.0% annually, you can do this in any bank, but only up to $5 million, from that amount you have to look for financial instruments in the capital market to make money.

Bonds in longer pesos, such as the DICP that matures in December 2033, have a neutral rate of return. This bond is worth $24,800 and has a technical value of $18,523, as it pays a rate of 5.83% annually, you achieve a better return in the future. The problem is the number of years the title lasts. However, not all of them are pale, this bond begins to pay amortization in June 2024, and will give you a flow equivalent to 5% invested for many years on average.

Conclusion

Congress left a bitter taste for investors who had purchased sovereign bonds in dollars and stocks. We will have to wait for the market to refine, rearrange itself, see how the prices and parities are to see what investment path is adopted.

Bonds in pesos adjusted for inflation are a very good option, in the scenario that the national government continues to delay the exchange rate, which looks like a flag to hold over time. To take a position in bonds maturing in 2026/28, you have to pay a premium higher than their technical value, given that the dollar grows well below expected inflation. For long bonds, a premium is paid, but this is diluted by the high interest that the security earns.

For those who are more risky, the PARP bond maturing in 2038 has a positive rate of return of 3% per year, you buy it at a parity of 94% on the technical value, it pays a low income of 1.77% until March from 2029, and from year onwards 2.48% annually until maturity. The amortization begins to be paid from September 30, 2029. From the negative point of view it is very long, and leaves little flow, as a positive point of view you pay it below the technical value and it has a higher rate of return than all the previous ones.

We will have to let the days pass and carry out damage control, the unapproved law will force a change of plan, the scenario becomes more complex. We believe that the government will seek fiscal balance by removing subsidies (the consequence will be more inflation in the short term), anchor the exchange rate by pushing back the dollar, and investors will wait longer to invest. Cheer up.

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