The main Wall Street indices are trading lower on Wednesday, alert to a possible advance by the American Congress in an impeachment against current President Donald Trump. On the other hand, investors are keeping an eye on the transfer of presidential command on January 20. Global Rates Rise and Impact Emerging Markets Bonds and also in the premises.
All three major US stock indices trade in the red, with the Dow Jones declining, 011%, followed by the S & P500 that fell 0.2% and the Nasdaq that lost 0.21%.
This context naturally generates a negative impact on Argentine debt, not only because they are higher-risk bonds but also because the local curve is long, that is, their short maturities only start in 2029 and it does not present short-term bonds.
Argentine bonds operate today with tiny advances, although in the aggregate of the last days they reflect major weaknesses. The short part of the curve oscillates between falls of 0.04% and rises of 0.25% as in the case of Global 2030. In the middle and long part, bonds 2035 and 2038 rise 0.43% and 0.34% respectively, while at the end of the curve there are increases of 0.25% on average.
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Looking at the aggregate of the last 5 days, important falls are observed in bonds that lose 2.6% in the short part, 3.15% in the middle part and 2.8% in the longest part of the sovereign curve. in local law dollars.
This weakness may be associated with a context of domestic fragility together with international factors such as the increase in the US interest rate that ends up hitting all global debt and emerging debt in particular.
Country risk remains above 1,400 points, operating at 1,417 points, more than 30% above the values reached after the debt swap last September.
The Adrs showed mixed behavior, while the S&P Merval index advanced 0.5% to 51,467 units.
The lack of an economic plan, together with fiscal fragility and without an agreement with the IMF closed, generate doubts among investors. This is further enhanced by the increase in coronavirus cases and the chances that the Government will be forced to shut down the economy again, with the fiscal and economic impact associated with this measure.
Even so, the shares made a positive start in 2021 gaining 1.5% on average. Last year, after strong volatility, global benchmarks ended with gains of 5% for the Dow Jones, 16% for the S & P500 and 44% for the Nasdaq.
Rate hike in the US
In the last few days, the American rate generated a sharp rise, reaching the highest level since last March and operating at 1.14%. A rise in rates generates volatility in bonds worldwide, especially impacting on debt with a longer duration and longer maturities, as these bonds are more sensitive to variations in interest rates globally.
Juan Pablo Vera, head of operations of Tavelli y Compañía explained that a rise in US Treasuries puts emerging market bonds on guard.
“We are seeing in the last days a recovery in the equities of Emerging Markets that cannot be replicated by the debt in dollars of these countries. This behavior could be attributed to the increase evidenced since the first days of this brand new year by the rate of US treasury bonds. Behind the rise in Treasuries is the mega stimulus plan (more fiscal than monetary) promoted by the incoming administration of Democrat Biden. Higher indebtedness and possible rebound in inflation would be the consequences. For the emerging countries that have been enjoying the almost 0% rate of the central countries and need to refinance their liabilities, this is not good news. These indicators will have to be followed carefully, despite the fact that our country is excluded from the good times but also from the bad ones ”, explained Vera.
At the end of 2020, the yield of the 10-year bonds oscillated between 0.90% and 0.95%, from there it began a slow but steady rise that deposited it today at daily highs of 1.185% and then fell back to 1.13%. In the same period, the ETF that replicates the bonds in dollars of developing nations (EMB) began a price adjustment from levels of US $ 115 to the current US $ 113.
In line with what Vera mentioned, a rate hike is not good news for emerging market bonds and Argentina in particular, since the scenario could end up hitting weaker markets like ours.
Looking at the yield differential of Argentina versus its peers, we can see that our country’s bonds are the riskiest on the planet. To put it simply, we are last in « D », this being the last category before the decline (default).
Grupo SBS analysts added that “the global scenario improved considerably for emerging economies, both due to the start of vaccination campaigns around the world and due to the continuity of fiscal and monetary stimuli in developed economies. Argentina still has not regained access to the market and that is why it is not able to take advantage of financial conditions that remain favorable, with interest rates at minimum and ample liquidity ”.