Argetina Today, January 17, 2007

ARGENTINA TODAY, January 17th, 2007

Country-risk slides to historical minimum.
Argentine country-risk crumbles to 198 points, being the lowest intra-daily value reached during a financial day. According to JP Morgan, Argentina headed today decreases posted in emerging markets indicators.
Mutual funds grow 71% posted a 71-per cent annual increase in 2006 by reaching a total net worth of ARG$18.83 billions. The segment advancing the most was stocks.
AFJP earn $7.24 bl with bonds and stocks.
Profitability reached by private retirement pension in 2006 exceeded 25 per cent annual. This phenomenon translated into an increase in the value of Retirement and Pension Funds Administrative Bureaus' (AFJP) investments, 32 per cent higher than in 2005.
Bonds accumulate 6% rise. Upgrading of Argentine rating by the agency Moody's made bonds in Argentine pesos more attractive for foreign investors, who arrived yesterday with almost $120 millions to buy them. This was the greatest foreign-currency inflow of the year. Swap papers rose up to 1.20 per cent and post-default ones in Argentine pesos, 1 per cent. Moody's rating also coincided with a US Treasury bond rate fall. When this happens, investors seek emerging market papers. However, in Latin America, that menu has now become smaller, since Venezuelan and Ecuadorean bonds have retreated due to oil price fall and to their presidents statements. Argentine Central Bank was forced in this way to buy $70 millions to avoid dollar value decline. Yesterday, it collected more than ARG $2 billions in LEBAC (Central Bank's Bills of Exchange), when it only needed ARG $200 millions to cover maturities. It looks like Europe with Marshall Plan after war due to the amount of dollars coming in. More than $100 millions came in Argentina to buy bonds, boosted by better rating granted by the credit rating agency Moody's and US rate yield collapse. Almost all bonds closed at record prices, while country-risk slid 2.71 per cent, to a historical minimum of 202 points. The risk rating agency upgraded Argentine debt rating from "stable" to "positive" due to fiscal account improvement and economic growth, which help reduce foreign vulnerability. Moody's.This rating improvement coincided with US Treasury bond rate fall, to 4.72 per cent, due to Federal Reserve Empire State report, which showed that manufacturing activity in New York was surprisingly slack, hinting that economic growth may have slowed down at the beginning of the new year. These surveys work in favor of interest rate cuts. Such data brought almost $120 millions from foreign lands (the highest figure of the year) to buy bonds. Transaction amount in the Electronic Over-the-Counter Market (MAE, in its Spanish acronym) leaped to ARG$1.53 billions, to which we should add ARG$305 millions from Buenos Aires Stock Exchange. More than ARG$1.8 billions were traded all together, a considerably high figure for a normal day of January. The idea that some Kirchner, whether Néstor or Cristina, may win next elections rules out the possibility of domestic debt default, attracting foreign investors, who also see a considerably-low US bond rate. In fact, dollars scattered across the entire region yesterday and bought Chilean, Uruguayan, Brazilian, Mexican and Argentine bonds. Menu has shrunk considerably, since investors do not want to take Ecuador and Venezuela's risk, greatly favoring Argentina.Debt swap bonds were the ones raising the most. Discount in Argentine pesos advanced 1.10 per cent and Par in Argentine pesos, 1.25 per cent. This bond has accumulated profits of more than 6 per cent in this first period of the month, while Discount is offering more than 5 per cent.All papers were highly requested from the beginning of the session by the most experienced investors, who already sensed Moody's data beforehand. When news was officially disclosed, bonds calmed down because the big ones had already taken positions. However, one hour before close, purchase fever returned in MAE (closing one hour after Stock Exchange), leaving all papers close to the day's maximums. In post-default bonds (medium-term and lower rate than debt swap's), increases in papers in Argentine pesos reached up to 1 per cent, as it happened with BODEN 2014 and BOCON PRO12, which is surprising everyone with its daily sharp rises and a 4.25-per cent increase in the month. BOGAR 2018 leaped 0.70 per cent and, during the year, it has increased 4.75 per cent. This bond is included in almost all portfolios, since its duration-rate relationship is very well-balanced. This is the favorite paper of foreign investors.In MAE, Central Bank's Securities (NOBAC) were highly sought, adjusting by BADLAR rate. This rate arises from the average paid by banks for 30-day more-than-ARG$1-million time deposits. Almost ARG $400 millions were traded in these papers, which offer an around 1-per cent monthly rate. BADLAR settles at 10 per cent annual, to which we should add a 2-per cent surcharge from NOBAC. This rate is appealing, since, with a falling dollar, it is like earning 1 per cent monthly in foreign currencies. There's no market across the world offering this yield with such a considerably-low risk.Bond rise favored banks' stocks in Buenos Aires Stock Exchange. The banking entity Galicia rose 3.52 per cent; Macro, 2.47 per cent; and Banco Francés, 0.50 per cent, while Mortgage Bank leaped more than 7 per cent. Crucial US data will be disclosed today, which will affect investors' mood with respect to stocks and bonds. We are talking about Federal Reserve Beige Book, which offers an economic outlook of several US states and wholesale price index.These data hit Federal Reserve's mood, which has to decide in which moment interest rate cut will start. Fall of these yields will attract more dollars to these coasts, seeking appealing rates.Dollars arriving yesterday to buy bonds forced Argentine Central Bank to work really hard to buy foreign currencies. Central Bank acquired $70 millions in a fully-seller market. With these purchases, not only did the monetary authority raise reserves to $ 32.78 billions, but also it prevented greater dollar price collapse.In exchange agencies, dollar kept on being sold at ARG $3.10. However, in MAE-Forex (main wholesale market), price got stuck during the entire day at ARG $3.080 for purchase and ARG$3.081 for sale. Today, Central Bank will have to strengthen its purchases if it wants to avoid a new dollar decline, since today's orders came in after close and sales predominate.