For Argentina watchers, Lebac is the word du jour

For Argentina watchers, Lebac is the word du jour

15/05/18 - 13:38 - Argentina’s central bank faces a moment of reckoning this afternoon.

Will a $25bn auction of its short-term securities known as Lebacs manage to restore calm to local currency markets, after the peso shed more than a fifth of its value over the last three weeks? The deciding factor will be how many of the Lebacs that are maturing on Wednesday will simply be rolled over – demonstrating confidence in the central bank’s control over the peso – and how many will be sold for dollars, putting further pressure on the currency.

Since the weekend, the central bank has being playing hardball. It put $5bn dollars of its foreign exchange reserves on the table, offering dollars for 25 pesos each, on both Monday and Tuesday.

Although the peso took a hit on Monday, falling by more than 7 per cent after the central bank sold just over $400m, it rallied today to around 24 per dollar dollar amid more aggressive intervention and despite the wider sell-off emerging markets assets.

As the crunch moment approaches, sources at the central bank assure that as many as 80 per cent of Lebacs will be rolled over, in part because many are held by the public sector.

As well as the amount of Lebacs rolled over, investors will be keenly watching the interest rate that results from the auction.

Although the central bank will try to keep them as low as possible, close to 40 per cent, it may need to bump rates upwards to keep investors keen. Auction results are expected to start coming out at around 3pm EST. If all goes well, it could be a turning point for Argentina in its battle to keep the peso under control.

 

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