Time to Go Local in Argentina as 38% Yields Have BofA Saying Buy

As Argentina’s peso weakens and its inflation rate tops 30 percent, many foreign investors naturally regard the country’s local bond market as off limits. That’s a mistake as far as Balanz Capital and Bank of America Corp. are concerned.

President Mauricio Macri’s settlements with holdout creditors have buoyed investor confidence in Argentina, helping push yields on some of the country’s dollar-denominated debt to record lows. But some of its peso bonds boast yields of about 38 percent as the central bank ratchets up a key interest rate to tame inflation.

To Balanz CIO Walter Stoeppelwerth, investors stand to profit as the push to rein in the cost of living will pay off in the second half of the year, bolstering bond returns. And while he recommends hedging the peso, Stoeppelwerth said it may not be necessary in the short term because the currency could strengthen in coming months as April’s soybean harvest spurs an inflow of dollars.

"Even with inflation and Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term, you’re protected," Stoeppelwerth said from Buenos Aires. "People will be compensated for holding the bonds through capital gains.”

Stoeppelwerth, who moved to Argentina in 2014 after stints as a money manager at Tiedemann Investment Group and Triogem Asset Management, recommends the central bank’s notes as well as buying floating-rate peso bonds due in 2018 and 2020. The securities, which are tied to the local deposit rate known as Badlar, both Yield Yield A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a Read this Term about 33 percent.

So-called floaters and bonds that are linked to yields on central bank notes are also among Bank of America’s top picks. Analysts Claudio Irigoyen and Ezequiel Aguirre recommend hedging as they expect the peso to weaken throughout the year.

Consumer prices rose 32.9 percent in February from a year earlier, based on the Buenos Aires City gauge that the federal government is using while it overhauls the national statistics agency after years of alleged misreporting.

“The main risk to these instruments is a significant decline in local interest rates,” Irigoyen and Aguirre said in a Feb. 22 report. “But since inflation is around 30% it is highly unlikely local rates will decline in the near term.”

--With assistance from Chiara Vasarri and Daniel Cancel To contact the reporter on this story: Carolina Millan in Buenos Aires at cmillanronch@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Michael Tsang at mtsang1@bloomberg.net, Lester Pimentel

By: Carolina Millan

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