2024-03-05 23:31:00
The recovery of the Sovereign bonds led to a considerable reduction in risk country in recent months. Since the triumph of Javier Miley in the presidential runoff, the index was reduced 28% by going from 2,243 basis points to 1,617 current, the lowest level in more than two years.
Country risk is a measurement developed by the JP Morgan bank. Known as the Emerging Markets Bond Indicator (BADfor its acronym in English), measures the difference between the interest rate that a country pays on its bonds and the interest rate it pays United States for its Treasury securities, considered risk-free. The greater the difference between both assets, the higher the figure will be.
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The index is directly related to the risk of investing in financial instruments of a given country, its ability to meet its public debt obligations and the probability of default. Specifically, the fate of Argentine bonds and country risk is inversely proportional. That is, when the first ones go up, the second one goes down and vice versa.
Country risk: why it fell to minimum levels in more than two years
During the first day of the week, The indicator remained below 1,600 points, a minimum that it had not touched since September 2021. Market sources linked the rise in Argentine papers on Monday with the presidential speech in the Legislative Assembly, where he ratified the course adopted by the Minister of Economy, Luis Caputoand called on the governors to sign a series of “refoundational” points of the country, which he called the May Pact.
In this sense, in a recent round of PERFIL consultations with analysts, the majority view linked the decrease in the JP Morgan index with the signals of the ruling party in pursuit of reaching the fiscal balance towards the end of 2024. Official figures gave a first taste of that path in January, which closed with a financial surplus following 12 years.
In effect, Caputo led a sudden year-on-year pruning of primary spending of 39.4% in real terms, discounting inflation for the same period. In this way, he managed to reverse the deficit and convert it into a surplus of $2 billion. If the debt interest payment is subtracted from that figure, a total surplus of $0.5 million.
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A detailed analysis by the Argentine Institute of Fiscal Analysis (IARAF) showed that the items that were cut the most were retirements and contributory pensions (-$885,074 million)energy subsidies (-$366,451 million), real direct investment (-$321,474 million) and total transfers to provinces (-$310,781 million).
Regarding how the numbers impacted the bonuses, the director of the Institute of Labor and Economy (ITE), Juan Manuel Telecheaindicated that the reduction of country risk “is positive because when it falls, the signal is that the market considers that there are greater probabilities that the debt will be paid.
However, Telechea maintained that “bond prices are still at extremely low levels” and in recent weeks they have increased “becauseThe market is seeing that Milei’s measures imply greater chances of paying that debt“.
In this sense, the economist predicted that the decline may extend because “bond prices are still very far from the values of any other debt on the market,” although he tied this alternative to the success of Milei and Caputo’s economic program.
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The market supports Milei’s plan and lowers the country risk
Financial sources argued that the balance of public accounts It implies compliance with the Government’s commitments to its debtors. and that scenario is beneficial for holders. This dynamic makes sovereign instruments attractive, agents buy them and as the price rises, they precipitate a drop in country risk.
Despite the recomposition of the value of the bonds, Argentina is still prohibited from accessing the international debt market. At current levels, if the National Treasury were to issue securities denominated in foreign currency, it would have to borrow at an unpayable rate in a context of economic recession.
Regarding this topic, the financial derivatives trader Nicolás Olivé Durán calculated that a retraction of the JP Morgan indicator aun level of between 500 and 700 basis points It might mark the country’s return to foreign debt.
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