Interest rates in Argentina go to 97%, but risk is high; understand – 05/16/2023 – Market

The government of Argentina announced this Sunday (14) a package of measures to try to contain inflation above 100% and stabilize the peso against the dollar. Among the main initiatives is the increase in the basic interest rate, which will rise from 91% to 97% per year.

In a scenario in which the Selic rate in Brazil pays a yield of 13.75% per year, the remuneration offered by Argentine bonds draws the attention of investors looking for opportunities in fixed income.

Market experts point out, however, that the greater the return offered, the greater the level of risk that the investor assumes when making the investment.

It is no different in the case of Argentina. Chief economist at Mirae Asset Wealth Management, Julio Hegedus Netto says that the biggest risk of investing in Argentine bonds is that the country’s Treasury simply does not pay the investor. “That’s because the chance of Argentina asking for a moratorium on its debt again is great”, says Hegedus Netto.

In March, Fitch downgraded Argentina’s foreign currency sovereign debt rating to reflect its view that a debt default is imminent.

The chief economist at Mirae Asset adds that the CDS (Credit Default Swap), an indicator that measures the risk of a given country or company becoming insolvent, is traded at a very high level, around 1,300 points in the case of Argentina . As a comparison, Brazil’s CDS currently runs around 230 points.

“The CDS is at the heights. In other words, the market believes that default is more and more possible”, says Hegedus Netto. He recalls that he doesn’t have much time left, in mid-2020, Argentina has already failed to pay interest in the amount of US$ 500 million. “You have to be very cold-blooded [para investir na Argentina]. I don’t recommend it for individuals.”

Coordinator of the Center for Studies in Finance at the Getulio Vargas Foundation (FGVcef), William Eid Junior states that investing in Argentine bonds is a high-risk bet that tends to add volatility to investors’ portfolios.

He adds that, for those people with high net worth, allocating a small portion to a high-risk investment, with the chance of also having a high return, might even make some sense. But that, for those who do not have large sums to invest in the market, investing in Argentina’s debt is not recommended.

“I don’t think it makes sense for individuals to take such a risk”, says the expert.

Argentina bank account or digital platforms are options to access investment

In addition to being a very high-risk investment, access to Argentine debt securities is not easy.

Bonds from the neighboring country are not traded directly on the Brazilian market, says Eid Junior. For that reason, for those with the stomach to endure the comings and goings of Argentine securities, continues the FGV coordinator, an alternative is to open an international account, offered by the private banking areas of the big banks, in which the investor has access to the United States, which negotiates these securities.

Economist and founding partner of the financial planning consultancy Sarfin, Bruno Mori says that, in order to operate debt securities of national Treasuries, the most common thing is to have an account in the currency of the country in question.

“This operation is carried out via a brokerage, in the same way as we buy and sell Brazilian Treasury bonds”, says Mori. He adds that individual investors need to have an account in pesos at a bank or brokerage in Argentina, exchange reais for Argentine pesos and select the security based on the term and interest offered.

“The question involves several risks. The two main ones are the exchange variation and the credit risk of the Argentine Treasury”, says the planner. “Investors must map all the risks involved and assess whether the operation makes sense according to their own risk profile”, says Mori.