(Bloomberg) — Argentina successfully swapped about 77% of its peso debt due this year for longer-dated notes in a win for President Javier Milei as he moves aggressively to shore up public finances and stabilize the crisis-prone economy.
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The government exchanged 42.6 trillion pesos ($50.4 billion) of local bonds maturing in 2024 for securities due next year through 2028, according to a statement Tuesday from the Economy Ministry announcing the largest domestic debt rollover in Argentina’s history.
Extending maturities on the bonds will reduce the need for the government to print pesos to cover its debt payments. The results were released hours after fresh inflation data showed consumer price pressures eased more than expected in February, a second monthly decline that prompted the central bank to unveil a surprise interest-rate cut late Monday night.
The debt auction results — which counted on full support from the public sector and marginal participation among private sector holders — were in line with expectations, according to Paula Gandara, Chief Investment Officer at Adcap Asset Management in Buenos Aires.
Roughly 17.5% of private-sector holders of local debt participated in the auction, according to government data. Gandara expects that commercial demand for inflation-linked notes will pick up as a result.
“The relative value of the asset classes favors inflation-linked bonds,” she said by email.
The central bank didn’t offer put options — pledges to buy back the notes if they fall below a certain price — on the new peso bonds in a move that discouraged private banks from participating in the deal, according to two people with direct knowledge of the matter. The use of puts had reached a record under Milei, prompting officials to scale back their use.
Still, demand for the swap was guaranteed as more than 70% of Treasury notes are held by public institutions, including the central bank, social security agency Anses and Banco Nacion, according to estimates by consulting firm 1816 Economia & Estrategia.
Economy Minister Luis Caputo floated the idea of the bond swap in early January. And while Argentina is largely reliant on local debt exchanges to manage its finances, the record size of the operation tested local market confidence in Milei’s economic program, just three months into his presidency.
While inflation cools and the government gives itself more breathing room, everyday Argentines are feeling the pinch. The country is heading into a deep recession this year as Milei slashes social security spending and inflation-adjusted wages plummet to levels not seen in decades.
The new president is also facing fierce resistance to his austerity plan from both Argentina’s powerful labor groups and its provincial governors, who are struggling to shore up their finances as federal transfers are reduced. La Rioja province, in the country’s northwest, has hired advisers to to renegotiate its debts.
–With assistance from Silvia Martinez.
(Updates with investor reaction and context throughout.)
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