The main indexes of the New York Stock Exchange fell for the third day in a row while they are still keeping near the historical nominal records they reached after the strong recovery that characterized the second half of last year. Investors, accustomed to seeing widespread increases from the hand of stimulus packages and pumping liquidity from central banks, preferred a few wheels to reconsider matters. They did it because They looked with suspicion at the bounce of an indicator that in the past already knew how to give Argentina a headache, and that if its rally accelerated, it could complicate it again.
What stopped Wall Street, at least for a moment, was the rise in the rate of 10-year US Treasuries, the bonds of the North American nation. The 10Y Index, as it is also called, rose briefly to 1.33% before slowing its rally.
It appears to be a little compared to the 18% per year that Argentine debt securities can achieve, but as they recovered they reached their maximum year-to-year cap amid strong data on retail sales and producer prices at the same time, sparking optimism about the future of activity. Economic concerns and inflation in the United States.
Argentina did not enjoy the tailwinds in 2020, after all, it participated in the worst economic recession, but the global recovery after the Corona disaster is not in its favor. The weak global dollar is preventing currency devaluations in neighboring countries, the boom in raw materials boosts their main exports, and the central bank – against the ropes for nearly three years – is feeling this in the form of a lull in exchange rates.
But if the financial euphoria that followed the collapse of the epidemic stops, this context may vanish and currency problems will re-emerge.
“The rate of 10 years on US Treasury bonds has increased because there is an expectation of economic recovery as vaccination develops. On the other hand, the expectation of a third round of the financial package in the United States, encouraged by the Biden presidency and the Democratic Senate and the strong monetary stimulus by the US Federal Reserve In other words, it is a forecast of economic recovery and an increase in inflation, “explained Federico Furiase of EcoGo.
Why does it matter to us? Because S.If this rate continues to rise rapidly, leading to lower inflation expectations, it could generate expectations that the Fed will pick up the barrel and reduce the monetary stimulus, which could lead to declines in all global financial markets and a global strengthening of the dollar, while putting pressure on emerging market currencies significantly. Common and Argentine pesos in particularThe economist explained.
On one level, Argentina is shielded these days from another negative impact that could affect emerging markets if the bullish cycle of global markets slows down: the impact on debt.
Raising the ten-year rate is important because it raises the cost of the safest investment in the world, and it also raises the tide for the rest of the countries. To that, we must add to this the country risk differential for each country, said Neri Persecchini of GMA Capital.
But at this point, the domestic decoupling is gross: with nearly 1,500 points of state risk, the Argentine Treasury is completely out of the market and
“The interest rate hike in the US for 10 years has very little effect on Argentine bonds, because they have an implicit expectation of a 90% default, so the effect is likely to be marginal. Special issues outweigh the international context,” added Persheni.
For now, the first implication of doubts is that the rebound in the 10-year bond yields on the investors ’minds is noticeable in emerging currencies. The Brazilian real fell 0.8% during the week while the Mexican peso lost 1.4% against the US dollar.
They are small movements, nothing to worry about the local market. The problem may arise if the increase in 10Y performance is maintained over time. The exchange rate lock protects the official dollar, but it cannot stop the exchange gap in the same way.
A move in the average of 10 years could be a passing warning. The United States Federal Reserve (Fed) has shown signs of being committed to leading the economic recovery without worrying too much about the price level. As it has in the past, a 10-year rate hike can be canceled with little if progress continues over time.
“I very much doubt that the Fed will allow it to skyrocket, and I think it is doomed to buy Treasury bonds to prevent the rate going up,” said Fourias.
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