The market demanded liquidity and the Economy granted it: what to expect for interest rates after the Treasury auction

The financial market is preparing for a scenario of greater calm in interest rates, after several days marked by a shortage of liquidity in the short-term segment, which led the repo rate to exceed 25%. In this context, the result of the Treasury debt auction held this Wednesday, after the extended holiday, will imply a net injection of $1.7 trillion into the market, which could help alleviate tensions and favor a stabilization of yields in the coming days.{#p-1794485974398-48785}

The BCRA demonstrated that it will seek to reduce volatility in rates. Before the auction, it intervened in the REPO and SIMU rounds to lower rates, as highlighted by Martín de la Fuente, an analyst at BAVSA.{#p-1794486168845-74191}

"The Central Bank seems to have issued a clear signal that, with the international context much better than last Thursday and without pressure on the exchange rate, it is willing to curb the volatility of overnight rates using tools it had not resorted to for quite some time," added the consulting firm 1816 this morning.{#p-1794487312033-99754}

In this context, in the auction on Wednesday, the Treasury Secretariat received bids for $11.60 trillion and awarded $8.87 trillion. Considering all the maturities to be refinanced, the effective rollover of the auction was reduced to 84%. Thus, the balance of payments and placements shows an estimated net release of $1.7 trillion, the first expansion of pesos associated with a placement since August.{#p-1794487307453-26333}

It is important to distinguish that part of those funds already entered the market on Wednesday, with the payments of the Boncer, while the liquidation of the new securities and the maturities corresponding to that date will take place on Friday.{#p-1794485974398-30681}

What happened with the rates: the Treasury had to offer higher yields

One of the central aspects of the auction was the cost of financing. In a scenario of restricted liquidity, the Treasury had to validate yields higher than those recorded in the secondary market to attract investor demand.{#p-1794485974398-3865}

According to the Research team at Puente, the two fixed-rate instruments were placed with yields approximately 100 basis points higher than market references, while the rest of the alternatives remained relatively aligned with negotiated prices. The Lecap maturing in January 2027 (S29E7) awarded $2.15 trillion and offered an effective monthly rate (TEM) of 2.08%, equivalent to an effective annual internal rate of return (TIREA) of 28.08%. Meanwhile, the Boncap maturing in June 2027 (T30J7) captured $1.62 trillion, with a TEM of 2.23% and a TIREA of 30.36%.{#p-1794485974398-60753}

The highest demand was concentrated in the new TAMAR rate (variable) bond maturing in April 2027, which received awards of $3.51 trillion and closed with a margin of 2.5 percentage points over that reference. This instrument represented approximately 40% of the total placed.{#p-1794485974398-88348}

According to Valentín Gómez García, research analyst at Adcap, "the market's need for liquidity ultimately prevailed over the incentives offered by the Treasury." "In contrast, we estimate that the BCRA absorbed $1.75 trillion today through the REPO round, suggesting that the cushion of pesos is beginning to be rebuilt," he added.{#p-1794486394171-64302}

On the other hand, the Research team at Balanz also noted that the "2028 Boncer, the only instrument offered post-2027, represented only 4.5%, with a rate just above the secondary market, which was reflected in a weighted average duration of placements of 162 days, down from the previous 355 days. Due to higher yields, the Treasury continued not to offer dollar bonds.

The Treasury had to validate yields higher than those recorded in the secondary market.
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Short-Term Rates Under Pressure Due to Lack of Pesos

The decision to release liquidity comes after several days of tension in the money market, where the scarcity of pesos pushed up yields on very short-term financing operations.

In the last session before the extended holiday, on Thursday, November 5, the average weighted rate of overnight collateral in BYMA had reached 29.62% nominal annual, while the rate of REPO operations between banks was around 32%. The lack of liquidity forced market participants to pay higher yields to obtain financing and increased the volatility of short-term rates.

However, in the session on Wednesday, November 11, signs of easing began to be observed. The average weighted rate of overnight collateral fell to 22.46%, representing a decrease of 7.16 percentage points compared to the previous session.

In this context, the net release of pesos resulting from maturities and new placements could help alleviate the financing needs of the financial system.

This Thursday, the inflation data for October will be released, which could be between 1.8% and 2%, a key reference that could lead investors to recalibrate their portfolios. For now, investment opportunities continue to concentrate on the so-called rate trade, which maintains greater appeal compared to the dollar trade, in a context of relative exchange rate stability. However, this calm coexists with a growing demand for coverage, a trend that has been observed over the last two months with increased demand for dual CER/TAMAR and TAMAR/Dollar Linked bonds ahead of the electoral year.