Argentina’s dollar-denominated bonds and corporate equities listed on Wall Street experienced a significant decline on Wednesday, following the Lower House’s decision to override President Javier Milei’s veto concerning a law aimed at augmenting funding for individuals with disabilities. On the same day, rates for the securities-guaranteed loans surged dramatically amid market uncertainty regarding the administration’s monetary policy. The dollar bond market experienced declines surpassing 2%, with the Global 2041 leading the downturn at -2.6%, followed closely by the Bonar 2029 at -2.5%, and the Bonar 2041 at -2.4%.
Argentine stocks traded on Wall Street via American Depositary Receipts (ADRs) experienced declines, with biotech firm Bioceres leading the downturn at -8.5%, followed by energy provider Edenor at -5.7%, and telecommunications and energy leaders Telecom and YPF both at -1.8%. “The deepening decline in bonds (the day had already started badly) after the veto was rejected was not because that law would upset the fiscal balance, but because it demonstrated Milei’s political weakness in Congress, which he had not had until now,” independent financial analyst Christian Buteler stated in a post on X.
Meanwhile, the annual rates for securities-guaranteed loans in Argentina experienced a significant increase to 80% following a sharp decline the day before. On Tuesday, the rates experienced a significant increase to 65%, yet ultimately settled at 2% by the close of trading. Securities-guaranteed loans, known as cauciones in Spanish, represent financial transactions denominated in Argentine pesos, characterized by a pre-established interest rate and backed by short-term negotiable securities. Upon reaching maturity, which can vary from one to 120 days, the borrower is obligated to repay the principal amount along with the accrued interest to the lender.
A broker, speaking on the condition of anonymity, indicated that the volatility commenced in July, coinciding with the government’s decision to discontinue the Fiscal Liquidity Bills (LEFI, by their Spanish acronym), which had been established a year earlier. The LEFIs served as instruments for liquidity management and the determination of interest rates. “Now, there is no reference,” the broker stated. “The government anticipates that rates will be dictated by market forces; however, when they decline significantly, the Central Bank intervenes by conducting one-day repo operations (pases pasivos) at a rate set by the day’s average rate plus two points.” “There is an enormous inefficiency — central banks around the world have a reference rate scheme rather than monetary aggregates,” as noted by the market source.