Argentine Peso Risks 'Disorder' If Rollover Fails, JPMorgan Says

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IMF Credit 'Cheap Financing' for Argentina, Says Goldman's Ramos

The Argentine peso may face “disorder” next week if the nation’s central bank struggles to roll over about $30 billion of short-term notes set to expire, JPMorgan Chase & Co. said.

The central bank is scheduled to auction notes known as Lebacs on Tuesday, in order to roll over about 674 billion pesos of securities that mature Wednesday. The yield on Lebacs due June jumped to 43.6 percent in the secondary market today, forcing the central bank to intervene in secondary markets.

“A failure in rolling over the maturing Lebac stock would lead to a disorder bid on the dollar and renovated capital outflow,” JPMorgan analysts Diego Pereira and Lucila Barbeito wrote in a note. "The recent measures by the central bank, together with Lebac rates above 40 percent suggest the authority would be able to roll a significant share of the stock.”

JPMorgan also recommended buying Lebac notes on bets that the government’s latest policies will "placate fears" and contain volatility ahead, according to a separate note by analysts led by Carlos Carranza. They also recommended an overweight peso position.

Major Debt Burden

Argentina faces over $111 billion in payments over the next 10 years

Note: Argentina has debt maturities up until 2117, when it will finish paying century bond

Source: Bloomberg

Argentina began talks with the International Monetary Fund on Wednesday for a standby agreement that will help the nation shore up its finances and support the peso, which is the worst performer in emerging markets this year. Lebac interest rates jumped today over the levels set by the central bank in the secondary market as retail investors looked to dollarize their portfolios, according to traders.

Retail Exodus

Argentines exit fixed-income positions, turn to dollar

Source: Cámara Argentina de Fondos Comunes de Inversión (CAFCI)

"Funds are liquidating their positions to cover withdrawals and pressuring the rate,” said Banco CMF Chief Financial Officer Juan Jose Ciro. “The local situation is still ugly: the spot exchange rate won’t budge and the rate is firm. We are seeing the tail-end of the crisis, when it starts to hit retail investor."

(Updates to add JPMorgan Lebac recommendation.)
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