Bonds still with appealing rates

This week starts with a promising tip for Argentine bonds: US Treasury 10-year bonds cut their rate to 4.68 per cent. A week ago, this yield settled at 4.83 per cent. This is the lowest rate of the last three weeks and causes domestic bonds' yield to excel itself.

Discount in Argentine pesos produces 6.58 per cent above inflation. With a calm dollar, this is equivalent to an around 15-per cent earning in the American currency, more than three times the profit earned with US Treasury bonds. If the aim is to assume low risks and head towards a short bond in dollars, BODEN 2012 (currently paying capital and interests) produces 7.67 per cent.

US bond rate fall arose after economic activity data were disclosed. The unexpected slowdown of US economy growth rhythm during the third quarter and a sharper-than forecasted fall of core inflation pushed benchmark yields to their minimum levels in more than three weeks.

"Gross Domestic Product (GDP) figures backed weak Fed remarks; that's why we are seeing continuity in escalation," David Coard, fixed-rate sales chief of Williams Capital Group in New York, said.

Futures

With these figures, futures market of short-term rates hinted that operators were already dismissing the possibility that the Federal Reserve might reduce rates at the beginning of 2007. On Wednesday, the Fed kept them stable at 5.25 per cent for the third consecutive time.

The first reading of third-quarter GDP showed a 1.6-per cent rise, remaining behind the expected 2.2-per cent leap and below a 2.6-per cent increase during the second quarter.

The core index for personal consumption expenditures, the Fed's favourite inflation indicator, increased 2.3 per cent annual during the third quarter, below medium forecast of a 2.6-per cent hike and a 2.7-per cent rise during the previous quarter.

With this context, Argentine bonds are in perfect condition to continue rising. Although on Friday they showed moderate falls of around 0.30 per cent (after strong Thursday reaction), this is not a worrying retreat, since fewer transactions were observed (only ARG$1.36 billions against more than ARG$2 billions on Thursday).

Another piece of information that may help domestic bonds is a 0.8-per cent inflation for October. Although official figure will be revealed in seven days, market will take positions thinking about that tip and November prices dragging.

Bond rises are still sharp, though short, since a profit-taking immediately comes over. This is because there are investors suffering from risk aversion and bringing foreign currencies into the country to take short profits. But, as long as foreign dollars keep on arriving (coming in at a pace ranging between $30 and 40 millions daily), market will increase its volume and this may extend rise periods.