Argentina dollar-linked bond will guarantee liquidity - analyst

The issue of at least US$500mn in dollar-linked bonds by the Argentine government set to take place on October 28 will guarantee liquidity to the local market, an analyst told BNamericas.

The largest outstanding dollar-linked bond emitted in Argentina is for US$330mn, noted Marcos Wentzel, local investment bank Puente's director of capital markets.

Large institutional companies including insurance firms, banks and mutual funds are interested in the bonds, with the latter in particular prioritizing liquidity.

Local banks' ability to acquire these bonds will be limited by restrictions on their foreign currency holdings, which can no longer represent more than 20% of either net worth or liquid assets.

The dollar-linked bonds will be repaid in pesos at the official exchange rate on the third working day prior to the payment date, which provides protection against possible local currency devaluations.

This is a key factor which has allowed the government to offer such low yields on the bonds, with high demand for these types of instruments generating lower interest rates than short-term bonds issued on the international market, Wentzel said.

The dollar-linked instruments will mature in 2016, and pay an annual yield of 1.75%.

The current issue will be for a minimum amount of US$500mn, and will likely be the first of several similar issues.

Future dollar-linked issues could have longer maturity periods of 36 months or more, and as such a yield curve will begin to form for these instruments, according to the analyst.