Appetizing 16% in pesos

Inflation-adjusted peso-denominated bonds keep on being appealing, easily beating those denominated in dollars. According to a report carried out by the banking entity Banco Santander Río, the yield is what makes these papers really attractive: BOGAR and Discount's return rates reach to 14.5 per cent annual and 15.8 per cent, respectively

We are talking about peso-denominated yields, but they may also be given in dollars, taking into account that quote has been stable for more than a year now. Expected 2007 inflation settles slightly above 9 per cent (according to monthly poll made by Argentine Central Bank), to which we should add around 6 points on average offered by peso-denominated papers above inflation.

However, bonds quoting in foreign currency offer less interesting rates: 8.6 per cent annual in the case of BONAR 2017 and 7.9 per cent in the case of Discount 2033.

Working against

On the other hand, hike of US Treasury 10-year bonds' rate (already reaching to 4.95 per cent annual) works against dollar-denominated papers.

The most significant points of this report are provided below:

Argentine bonds in pesos and dollars have developed in May a dissimilar performance. Argentine Bond Index (IBA, in its Spanish acronym) in foreign currency has lost 1.5 per cent. However, CER-adjusted peso-denominated IBA has climbed 0.3 per cent.

The same performance is observed when analysing the first five months of the year. Dollar-denominated IBA has plunged 3.3 per cent, while the one issued in pesos has leaped 7 per cent.

After having assimilated loss due to changes in Argentine Statistics and Census Institute (INDEC, in its Spanish acronym), peso-denominated papers started to rally robustly.

Rise of US Treasury bonds' rates makes dollar-denominated papers of emerging countries less appealing.

However, this foreign rate hike has barely hit peso-denominated bonds. Announcement of INDEC normalization boosts investors' appetite, increasing bond demand, particularly those in the medium and long tranche of the curve, like PRO12, BOGAR and Discount.