Government debt swap offer includes inflation-adjusted bonds

Economy Ministry’s last-minute addition of price-indexed financial instruments to the menu aims to improve the conversion’s prospects. Government faces maturities for AR$1.1 trillion this month.

Last Thursday, the Economy Ministry announced a debt swap, or “conversion”, due today, with the goal of postponing bonds maturing in the first quarter of 2023.

The initial offer, made for holders of eight bonds, consisted of two different “bond batches”: one made up of LEDES with maturities up to June 2023, and another one consisting of “dual bonds” maturing up to February 2024. 

Dual bonds are financial instruments in which the investor receives a payment that is adjusted through the best option between a fixed interest rate in pesos or the official US dollar exchange rate. This allows investors to hedge against both rising inflation and any potential exchange rate devaluations, because the investor can choose what yield to receive at maturity.

Yesterday, the Economy Ministry added another option: the LECER bond X16J3, an inflation-adjusted bond that matures in June 2023. However, this alternative is only available for holders of LECER X20E3 and X17F3, two inflation-adjusted bonds that mature in January and February 2023 respectively. 

This way, the Ministry reincorporated inflation-adjusted bonds, an option it had abandoned several months ago in favor of fixed rates. Market demand is greatest for price-indexed bonds because of the country’s high inflation. Bringing them back seems to be a way to improve the debt swap’s prospects.

This month, the Treasury has to face peso debt maturities of AR$1.1 trillion, AR$800 billion of which are in the hands of the private sector. For the first three months of the year, as a result of the December auctions, the Government obtained net financing of AR$700 billion.

“The fiscal/monetary challenge of the first two months of 2023 is significant,” consulting firm Equilibria wrote in its last report, adding that the Treasury faces maturities of US$1.11 billion and AR$ 2.5 trillion. During the year, the government will face maturities for 7.5% of the country’s GDP.


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