Alphacast Highlight: Liquidity management and better risk-return, the keys behind BYMA's repos
By Mariano Sanchez Moreno (msanchez@alphacast.io)
Read more Alphacast Highlights here
Repo captures investors' liquidity management. This asset-class choice to manage their liquid positions in local currency has intensified since the massive FCI outflows that ended in a sell-off in the yield curve of inflation-linked bonds (CER bonds) in Jun-22. Although repos are not unscathed by market ups and downs, as demonstranted by the increase in rates during the first trading days of the current Minister of Economy Sergio Massa's administration, their almost zero default risk, market depth and liquidity for short terms explain investors' preference. In light of this, 93% (ARS 160 bn on average) of the daily traded volume is invested in less than 3 days, which would indicate the strong preference of investors to stay in the short end of the ARS curve.
The spread between bonds vs. Treasury bills means higher probability of sovereign default. In recent trading days, the average spread on fixed-rate bills and sureties was 25 p.p. Political volatility, the profile of short-term indexed debt and living ghosts of the reprofiling of local currency Treasury bills in Aug-19 are part of the yield spread as well. Unlike Treasury bills, where the investor's payment guarantee is the Treasury itself, the borrower of funds via stock exchange's repos pledges certain marketable securities as collateral to which BYMA applies a guarantee margin . Thus, the investor who invests in repos knows that for each peso he lends to the borrower, the latter offers equity or bonds equivalent to 1.X times the traded amount. With this in mind, the market seems to be pricing that the risk of default is comparatively lower in repo than in Treasury bills.
