Debt: The Treasury will offer securities maturing before the elections to renew about $12.6 trillion

The Ministry of Economy will return to the market this Thursday to face maturities of $12.6 trillion, a still high amount compared to the average of $7.4 trillion from the last five auctions, which will force the Treasury to manage the delicate balance between liquidity, interest rates, and the dollar.

According to Adcap, the commitments originally amounted to $13.9 trillion, but were reduced after a swap of securities with the Central Bank. In turn, the Treasury maintains deposits of about $8.3 trillion in the BCRA, allowing it to meet part of the payments without needing to renew the total amount.

This margin will be central to the strategy. A rollover below 100% would return pesos to the system and could help sustain the recent drop in rates, but it would also increase the liquidity available at a time of greater demand for dollars. A higher renewal, on the other hand, would allow for the absorption of pesos and limit that exchange pressure, although at the cost of tightening monetary conditions again.

Another signal from the official announcement was the decision not to include the Bonar 2029 (AO29) in this auction. Given the high yields currently demanded by the market for hard currency sovereign debt, the Treasury avoided seeking financing in dollars at a cost considered high (around 10%) and opted to concentrate the offer on instruments in pesos and relatively short terms.

For the operation in local currency, Finance will offer five instruments: three fixed-rate securities, one CER letter, and one dollar-linked alternative. All mature between October 2026 and May 2027, so the Ministry of Economy avoided extending new commitments into the second half of the electoral year and beyond the current mandate.

In fixed rate, it will reopen the LECAP S30N6, maturing in November, launch a new LECAP for January 2027, and again offer the BONCAP T31Y7, which matures in May. Additionally, it will incorporate the LECER X29E7, adjusted for inflation and maturing in January.

For Daniel Chodos, head of Research and partner at Dhalmore Capital, the composition of the menu could respond to the official intention to "achieve the highest possible rollover at the lowest cost." The analyst highlighted that the offer includes three fixed-rate instruments, compared to the only LECAP that the Economy had been placing in recent auctions, while this time there are no dual bonds or TAMAR, and the CER proposal is limited to a short letter.

In this sense, Chodos considered that the decision "could be a signal that the Treasury is not willing to validate the current levels of long rates in duals, CER, and TAMAR." From Adcap, they also expect that demand will concentrate mainly on instruments maturing during 2026 and project greater interest in the shorter LECAP.

In any case, the longest fixed-rate segment could also find demand. Chodos noted that the recent compression of yields "could facilitate the placement of the new LECAP S29E7 and the reopening of the T31Y7." He also stated that if August inflation is between 1.6% and 1.7%, "a TEM of between 2.15% and 2.2% in that segment of the fixed-rate curve could be attractive."

Adcap adds that there could also be a higher premium as an incentive for those who accept extending duration without coverage against inflation or exchange rate.

The fifth alternative will be the D30O6, a LELINK maturing on October 30 and subscribed in pesos at the exchange rate A3500 from Wednesday, August 26. The instrument is also settled in local currency, but adjusted by the evolution of the official dollar.

Its presence becomes more important due to the exchange context. According to PPI, among the maturities, there is a dollar-linked commitment equivalent to $2.595 billion, whose repayment exchange rate will be determined this Wednesday.

Adcap expects significant demand for the D30O6 and considers that the Treasury could offer a premium to attract investors. The logic would be to channel part of the search for coverage that has recently manifested directly in the exchange market through dollar-linked debt.

In this way, the instrument also forms part of the balance that the Economy faces: offering coverage allows containing part of the demand for dollars, but the simultaneous placement absorbs pesos and can again restrict liquidity.

The main unknown will then be the percentage of rollover. For Adcap, a renewal below 100% would be compatible with the need to preserve current liquidity conditions and contribute to lower volatility in rates.

The monetary context offers some margin to do so. According to PPI, the caution fell to 22% TNA, down from 23%, while the interbank repo fell from 24% to 22.3%. The compression also reached the LECAP, whose maturities until November operated with effective monthly rates between 1.95% and 2.14%.

PPI, however, expects the renewal to end closer to 100%. The brokerage firm considers that the Government has already prioritized easing rates and allowed the official dollar to exceed the barrier of $1,500, so releasing too high an amount of pesos now could add a new source of exchange pressure.

Thus, the result of the auction will not only be measured by how much the Treasury manages to refinance. It will also matter what rate it has to offer, how much money it leaves in circulation again, and what proportion of demand is directed towards exchange coverage. With $12.6 trillion at stake, the Economy will have to find a balance between avoiding a new jump in rates and not simultaneously fueling greater pressure on the dollar.