Where to invest at low risk

Although time deposits are growing at an almost 40-per cent annual rhythm, yields continue on negative grounds in real terms, that's to say, below inflation levels (real one as well as that published by Argentine Statistics and Census Institute INDEC). However, conservative investors have at hand a more attractive option than a bank deposit: short-term public papers, Argentine Central Bank's drafts, mortgage-backed securities and financial trusts. These constitute today alternatives which, apart from great rates, offer a significant degree of liquidity with the possibility to sell such investment at any time.

Although time deposit rate slid abruptly in wholesale market during the first two months of the year (from 10 per cent annual to 7.75 per cent), no great variations were observed for retailers. A blue-chip company will pay 8 per cent annual for a 30-day deposit and it may extend to 9 per cent, if the term reaches to 180 days. We are talking about values close to 2007 inflation figure, even with the already-known adjustments proposed by Argentine Domestic Trade Secretary, Guillermo Moreno.

However, quote fall posted during the last weeks is also offering good opportunities in peso-denominated bond market, with provisions of adjustment, both by CER (retail inflation) and BADLAR (interest rate paid by banks for more-than-ARG$1-million time deposits). What's interesting is that not only are these opportunities observed in long-term bonds, like Discount in pesos (the most traded paper of domestic and foreign market), but also in shorter papers, similar to a traditional time deposit, though with greater rate and liquidity.

Market doubts about CER-adjusted bonds arose after inflation data manipulation by INDEC, at least in January and February. There's every indication that this may happen in March and probably throughout the entire 2007. Some Wall Street investment banks even repeated in their reports a word taking us back to more serious times: "haircut", name used among investors to refer to debt deduction carried out by Argentina in 2005 to come out of default. According to a recent JP Morgan survey, such deduction reached to 40 per cent in January and February, since adjustable papers' capital grew less due to underestimate of real inflation data.

Despite this situation, there are several appealing market options for conservative investors. Some of them are provided below:

BODEN 2008: this bond falls due in September next year and pays capital every six months. After capital payment planned for the end of the month, only three refunds will be left. This means that anyone investing ARG$1,000 in the following days will receive three 33.3-per cent premiums in September 2007, and the last two in March and September next year. It bears CER rate plus 2.7 per cent annual, around 11 per cent annual (if done with an official 8-per cent 2007 inflation). This means that it produces at least three points more than a time deposit and with the possibility of selling the paper. Before market adjustment, particularly in bonds, BODEN 2008 produced only 0.5 per cent out of inflation.

One-year NOBAC: we are talking about securities issued by Argentine Central Bank. As opposed to national state bonds, these adjust according to BADLAR development. For one-year term, they offer 0.99 per cent above such rate (which ended at 8.30 per cent yesterday, though it may climb to more than 9 per cent). This means that its yield would settle at more than 10 per cent annual in Argentine pesos, with capital payments every three months. The same paper at fixed rate produces 10.50 per cent for the same term. Banking time deposits's yield also rallies.

BOCON PRE8: this is a short-term bond, falling due in 2010 and, since 2006, it has been returning capital premiums on a monthly basis. Stockbrokers recommend not to buy it if having less than ARG$30,000, since fees charged by Securities Clearing House for fund deposit may reduce profitability. Its yield is also highly appealing, since it settles at 3 per cent out of CER.

PRE9: this paper settles in the so-called "medium curve" of bonds in pesos. It falls due in 2014 and it bears a highly appealing rate, since it turned out to be one the most affected papers by last weeks' fall. This bond offers CER rate plus 4.70 per cent, that's to say, almost 13 per cent annual in pesos.

BOGAR 2018: this bond ranges between a medium- and long-term paper. It pays capital premium every month, though such amortization speeds up as of 2008. This paper offers a higher-than-5-per cent rate out of inflation, that's to say, above 13 per cent.

Mortgage-backed Securities Series VII: they ensure a 9-per cent annual minimum. It is possible to make a choice between CER + 1 per cent or BADLAR + 1 per cent, the one offering the best rate.

Of course that, apart from considering refund in Argentine pesos, we should also take into account what happens with dollar quote. But, as the American currency is expected to stay at values really close to current ones, at least until the end of 2007, peso-denominated rate can also be expressed in dollars. Even if dollar rises between 2 and 3 per cent, hard currency profitability keeps on being highly attractive for those seeking low risk with high profitability levels.