Indexed bonds soar as greater inflation is feared

Data showing that retail prices have increased 0.7 per cent will be disclosed today. The last week of the month had a better performance in beef and food. However, December looks more complicated. The thing is that farming strike will have a strong impact on steak hike, plus rises over seasonal factors. Market operators are already betting on a greater index and, for that reason, indexed bonds were highly requested yesterday, which pay interest according to retail inflation or CER (Benchmark Stabilization Coefficient). The star of market is once again Discount in Argentine pesos, which on Monday broke its historical maximum.

Farming strike caused bonds in Argentine pesos to rise even more due to the inflationary pressures stemming from lower cattle supply. Investors covered themselves with papers in domestic currency indexing by cost of living, since they estimate that December inflation may exceed 1 per cent.

Not only did fear of a higher-than-expected price rise take bonds to its record prices, but also US Treasury bond 10-year rate collapse to 4.43 per cent, the lowest level since last January, since it is expected that the Federal Reserve will start cutting interest rates in the short term.

In view of this piece of news, domestic papers opened stable, resting at mid-session and resuming hike over the end of the day. Discount in Argentine pesos rose 0.72 per cent and closed at the maximum price since issue, at ARG$140. GDP coupons kept on accumulating profits. This derivative in Argentine pesos climbed 1.82 per cent and in dollars 2.60 per cent.

Post-default bonds in Argentine pesos leaped around 0.20 per cent, except for BOCON PRE9, which reached 0.60 per cent. Everything indicates that papers will repeat this month November's good performance, when they became the best option for investors with 16-per cent profits.

Bond hike took place with a poor transaction amount (something usual on Mondays), though not consistent with price enthusiasm. Transactions between the Electronic Over-the-Counter Market (MAE) and Buenos Aires Stock Exchange summed ARG$873 millions, equivalent to 50 per cent of a usual session. Dollar inflow to buy bonds was also poor, since it did not exceed $30 millions, when current rhythm settles around $100 millions daily.

No respite

Reluctance stems from the fact that there are investors willing to enter market, but they don't due to high prices. Domestic bonds do not let up for a moment, since as soon as they suggest a low fall, buyers appear. It is difficult to take the decision of participating in such a high market, since investors fear that, at mid-December, operators and companies will start taking profits to begin their holidays without frights, as it happens every year. This is called "bonus" effect, the ones in charge of investments get a percentage of profits and do not want to take more risks.

On top of all that, dollar slid in exchange agencies and wholesale market. Argentine Central Bank was forced to hold it with purchases above $50 millions, which raised reserves to $30.45 billions.

The American currency was offered at ARG$3.08 to the public. In Forex, the main wholesale market where $155 millions were traded, dollar crumbled to less than ARG$3.06, remaining highly seller for today.

After-close sale orders were really high and there are few buyers. Offer shows sellers for $80 millions against an only $4-millions bid. ARG$3.058 for purchase and ARG$3.06 for sale are requested.