The most relevant event on the financial agenda in the last two weeks was the Treasury's placement of foreign currency debt, for the first time in eight years. The Treasury auctioned a foreign currency bond under local law, maturing in November 2029, with a 6.5% annual coupon rate (TNA) and semi-annual payments in May and November. It awarded US$ 910 million in effective proceeds (US$ 1 billion nominal) at a 9.26% TNA rate (9.47% TEA). "This is the first time in 8 years that Argentina has secured financing to meet capital payments in foreign currency, a window that closed after the failed experience of the same Caputo during Macri's administration," stated a document from the Argentine Center for Political Economy (CEPA), accessed by the Argentine News Agency. Following the auction, the Ministry of Economy highlighted that "after nearly 8 years of absence from foreign currency financing markets, the Treasury placed US$ 1 billion in a new 4-year bond with a 6.5% coupon, under Argentine legislation. A total of offers for more than US$ 1.4 billion were received from over 2,500 investors." "The yield at the cut-off price resulted in an annual rate of 9.26%, equivalent to a differential of 550 basis points above US Treasury bonds of the same duration, or about 100 basis points below the yield of existing bonds with a similar duration," added the Ministry. It stated that "this reflects the value assigned to the market structure, with full amortization at maturity and demonstrated investor confidence in the improvement of economic fundamentals" and detailed that "the proceeds from this placement will be used to pay the amortization of the Bonares 2029 and 2030 bonds on January 9." In the same vein, Eric Ritondale, Chief Economist at PUENTE, pointed out that "the issuance is an important milestone because it marks the return of sovereign dollar financing through conventional market mechanisms." The government sought to send a signal of stability. Beyond the result, the auction of the new Bonar 2029 not only served a refinancing function but also aimed to create a positive image for future auctions (especially under foreign law). To this end, through two communications from the Central Bank (BCRA), it allowed insurance companies to borrow in the surety market and exempted the cross-restriction, provided these currencies were placed in the auction. According to the analysis by CEPA, the idea was "that a good result would allow anchoring expectations for the refinancing of the entire January maturities (US$ 4.2 billion) and reinforce the official position that it is not necessary to accumulate reserves for the country's risk to fall." However, when analyzing the concrete result of the operation, the assessment is more nuanced. "The cut-off rate was above Caputo's target and even above the yield of the most similar bond in the secondary market, as the AL29 traded at 9.0% TNA during the auction day (due to very optimistic rumors). To achieve this rate, only 70% of the offers were accepted, leaving out investors for US$ 395 million who demanded higher rates," added CEPA. Thus, "the results indicate that the path to rollover will be slower than the one the government wanted to impose, and the discussion on the causality between accumulation and market access is not sealed in favor of the official position." How could the financing strategy evolve? The rate at which the Treasury borrows depends on the risk-free rate (United States) plus a spread (country risk). Based on the Federal Reserve's projections published on December 10, the risk-free rate is expected to fall by half a percentage point by the end of 2026. CEPA indicated that "this scenario is favorable for the government's rollover expectations, as falling rate cycles not only allow for better rates but also larger capital flows for so-called emerging markets." Furthermore, when comparing the current country risk of 600 points with the rest of the region, it is observed that most are below 400 points, with Chile and Uruguay leading the list in the 100-point zone. The particularity is that no country is between 400 and 600 points, giving rise to the suspicion that a yield close to 9.0% for a sovereign bond that is highly likely to be paid looks too attractive to maintain at those yields, while the same IRR for a bond showing greater payment difficulties looks too low to have demand and approaches the 700-point zone. If the economic team manages to anchor payment expectations based on good auctions or a solid program of reserve accumulation at the BCRA, it is logical to think that the market may consider a country risk of 600 points (bonds yielding approximately 9%) too high for a country that has the capacity to pay, so the compression towards the 400-point zone could occur in a relatively short period (bonds yielding 7% at this risk-free rate level).
