Argentina’s Inflation Surge Can’t Shake Bond-Buyer Bullishness

  • XP Securities says traders confident Macri will tame inflation
  • Central bank boosted interest rates to as high as 38% in March

A surprise jump in Argentina’s inflation rate may be a setback, but it’s unlikely to dent bond investors’ confidence in President Mauricio Macri.

The government said last week that consumer prices rose 3.1 percent in June from the previous month, exceeding the 2.8 percent median forecast from analysts surveyed by Bloomberg. That was just the second reading from an index released by Macri’s administration in April as part of an effort to restore trust in Argentina’s economic statistics after years of alleged manipulation of official data.

While the pickup underscores just how difficult it will be for Macri -- who took office in December -- to quell inflation, bond buyers will give his government the benefit of the doubt, according to Proficio Investment and XP Securities. That’s in part because the central bank raised interest rates on some of its debt to 38 percent in March to tame price increases, bolstering its credibility. And while the bank has trimmed rates in recent weeks, its 35-day notes still boast yields of 30.25 percent.

“If you buy Argentina, you buy it because you have faith that the government is going to be able to deliver,” said Alberto Bernal, the head of strategy at XP Securities in Miami. He began recommending the central bank’s Lebac notes in March.

At its debt auction on July 12, the central bank surprised investors when it kept the rate on its 35-day Lebacs unchanged after chopping it by 7.8 percentage points since March.

The next day, the national statistics agency reported the faster-than-forecast inflation rise. The increase was in line with the 3.2 percent jump in Buenos Aires’s consumer price index in June, which pushed annual inflation to 47.1 percent, the highest in the three-year history of that index. Macri’s government temporarily used the Buenos Aires index to calculate bond payments earlier this year while it revamped the statistics agency.

The recent uptick in core inflation reflects the delayed effects of increases in fees for utilities, central bank President Federico Sturzenegger said on Monday.

“People keep investing in Lebacs because they’re thinking that inflation won’t be as high in the next year,” said Rafael di Giorno, a director at Proficio Investment in Buenos Aires.

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