Photographer: Diego Giudice/Bloomberg

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Argentine Peso Goes From Laggard to Leader—at Least for One Day

Argentina’s peso, the world’s worst-performing currency this year, reversed course on Tuesday and rallied more than any other major peer as the nation’s central bank stepped in with a $5 billion offer traders couldn’t refuse.

The government stanched the depreciation with a massive bid -- equivalent to almost 10 percent of the nation’s foreign-exchange reserves -- at 25 pesos to the dollar. After the market closed, it rolled over about $30 billion of short-term notes known as Lebacs, that were due to expire tomorrow, and sold about $3 billion in fixed-rate local bonds. Investors had worried that yet another plunge in the peso would derail the sale of the securities.

Now, with the currency’s plunge at least temporarily halted, tomorrow’s currency-market trading may deliver a verdict on whether the central bank has managed to restore the credibility it shed so quickly. A mistimed reduction in the inflation target back in December set in motion what turned into a 23 percent tumble in the currency this year that forced authorities to hike interest rates to a world-beating 40 percent and turn for help to the International Monetary Fund.

"Today’s bottom line is simple: Argentina is not going down without a fight," said Daphne Wlasek, a macro strategist at XP Securities. “The central bank efforts to ensure a successful auction on Lebacs was paired with a rescue measure of the Botes from the Finance ministry. All measures pointing to ‘prevent a downward spiral in the FX.”

The currency rose 3.9 percent to 24.05 per dollar at the close in Buenos Aires. The peso had fallen to a record 25 per dollar on Monday, a level the central bank is said have to marked as a floor and was willing to defend with $5 billion of reserves.

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

In a surprise move on Tuesday as emerging market assets plunged because of rising U.S. Treasury rates and a stronger dollar, Finance Minister Luis Caputo said the government would sell BOTE bonds due in 2023 and 2026. The government sold about 73 billion pesos ($3 billion) of the local debt. The shortest-term Lebacs were sold at about 40 percent.

“You can’t get a bigger sign of confidence from markets when you place a bond in pesos at a fixed-rate on one of the worst days in emerging markets this year,” Caputo said. “It is a sign of confidence in President Macri, and the policies he is putting in place.”

— With assistance by Pablo Rosendo Gonzalez, Carolina Millan, and Davison Santana

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