Debt in Pesos: Economy Managed to Renew All Maturities and Avoided Deepening Liquidity Tension

The Ministry of Economy renewed all maturities in the debt auction this Wednesday, receiving bids for $6.49 trillion and ultimately awarding $4.49 trillion. This resulted in a rollover of 100.26%, in an operation characterized by the shorter duration of the offered instruments and the liquidity tensions affecting the peso market.

The outcome was in line with market expectations, which anticipated a renewal close to 100%. This is significant because the one-day repo stock of banks with the BCRA, used as a reference for the system's excess liquidity, was around $1.1 trillion, still at historically low levels. Therefore, a significantly higher rollover could have withdrawn pesos again and increased pressure on short-term rates, while a much lower renewal would have released liquidity and could have shifted some of that pressure to the exchange market.

In this regard, Eric Ritondale, chief economist at Puente, emphasized that the placement, which was practically equivalent to the maturities, left a neutral direct effect on the liquidity of the financial system. Although monetary conditions will continue to depend on other factors, such as activity at the window of passes and operations in the secondary market, the result avoided an immediate absorption or expansion of pesos that could impact short-term rates.

Thus, with a rollover just 0.26% higher than the maturities, the auction did not imply a significant absorption of liquidity, after several sessions in which the scarcity of pesos had pressured the curves. During the previous day, the one-day rates had been at 22.4% TNA in the repo market and 22.8% in collateral.

At the same time, Puente pointed out that the Treasury paused its strategy of extending the maturities of peso debt in response to the recent volatility of local fixed income. The menu was concentrated on short-term maturities and no instrument in local currency exceeded January 2027, which allowed to avoid additional pressure on the long end of the curve and prioritize the renewal of immediate commitments.

The fixed rate concentrated the majority of the placement.

The main award corresponded to the LECAP S30N6, maturing on November 30, where Finance placed $3.29 trillion at a TEM of 2.11% and a TIREA of 28.54%.

The yield was practically in line with the secondary market, where the instrument had closed the previous day with a TEM of 2.12%. Thus, the Treasury managed to capture most of the financing without offering a significant premium compared to the levels already validated by the market.

The composition of the menu also marked a difference compared to the last auctions. This time, Finance stopped seeking a significant extension of maturities in local currency and the longest peso instrument offered matures in January 2027. The strategy allowed to reduce the pressure of new supply on the long segments, which had recorded a sharp rise in yields last week.

Within the inflation-adjusted segment, the Treasury awarded $650 billion in the X29E7, maturing on January 29, 2027, at a TIREA of CER +4.51%.

The yield ended slightly above the range of 4.2% to 4.4% that was used as a reference before the auction. Additionally, other analyses placed the level at around 4.4%, which is the point at which the instrument began to widen its margin against the implicit inflation incorporated by the market. Thus, the placement ended up offering a real rate higher than those previous references, at a time when the traditional carry in nominal instruments lost some of the margin it had shown months ago.

There was also participation in instruments linked to the official dollar. Finance allocated $230 billion in the D30S6, maturing on September 30, at a TIREA of 7.33%, while it placed another $320 billion in the D30O6, maturing on October 30, at 6.91%.

In the case of the September bond, the result fell within the range of 7% to 8% that was previously operating in the secondary market. Meanwhile, the new issuance for October ended above the reference close to 6.3% that some analysts had before the results were known. The additional yield combined with the possibility of obtaining coverage against the movement of the official exchange rate, in a segment where the BCRA has been participating through short-term dollar-linked instruments.

Finally, the Treasury allocated $50 million of the BONAR AO29, maturing on October 31, 2029, at a TIREA of 8.72% and a TNA of 8.39%.

The rate reflects a more demanding scenario for sovereign debt than that recorded during the original issuance of the bond. At that time, the AO29 had been placed at a yield close to 8.3%, while before this auction it was operating around 8.6% measured against the MEP dollar, after the country risk accumulated an increase of approximately 50 basis points since mid-July.

Thus, the Treasury ended up validating a rate slightly higher than the secondary market to complete the placement, although it kept the issued amount limited. This Thursday, August 13, the second round of the AO29 will be held until 1 PM at the same cut price, for an additional amount of up to $50 million.

Overall, the auction allowed the Government to cover practically all maturities without deepening liquidity absorption, while the structure of rates showed differences between the various segments. The LECAP was placed practically without a premium against the market, while the January CER and the October dollar-linked instruments ended with yields higher than some of the references that analysts had before the auction.