Crosswinds. The escalation of the conflict in the Middle East has created an unfavorable environment for global markets in general and emerging markets in particular. For Argentina, the tailwind has become crosswinds: on the positive side, commodity prices have increased; on the negative side, the dollar has appreciated globally and the worsening of the conflict in Iran could limit capital flows to emerging markets and weigh on the global economy. In this context, local assets have shown relatively stable performance compared with other emerging markets, and country risk continued to move sideways around 550 bps. In the peso market, interest rates remained stable and yield curves traded with some weakness, while the exchange rate edged slightly higher. Despite this, the BCRA maintained its purchases of foreign currency in the official market without generating volatility. While the market is operating cautiously, the macroeconomic outlook shows some yellow flags, particularly tax revenues, which fell again in February—reflecting weak economic activity—and forcing the government to continue seeking alternative sources of income and to further cut spending. Market consensus still anticipates a positive year in terms of growth, without exchange rate shocks, but at the margin inflation expectations have been revised upward. This could raise concerns about a further decline in the real exchange rate and put pressure on competitiveness. Looking ahead to this week, markets will start cautiously amid external risks, while locally attention will focus on Wednesday’s Treasury auction and the government’s ability to secure financing without putting pressure on interest rates. In addition, February inflation for CABA will be released today, while the national figure will be published on Thursday.

Tax revenues decline again. In February, tax revenues fell 9.6% yoy in real terms, marking the seventh consecutive decline. The drop was widespread across all subgroups, with the exception of the fuel tax. Taxes linked to economic activity fell 5% y/y in real terms, the fourth consecutive decline, driven by a 3% y/y real drop in VAT (DGI) revenues and a 7.5% real decline in the financial transactions tax. Taxes linked to foreign trade fell 34% y/y in real terms—a combined drop in revenues from import duties and export taxes—while those related to the labor market fell 5% y/y, personal assets tax 13%, and income tax 1% y/y in real terms. With this result, tax revenues in the first two months of the year declined 9% y/y in real terms.

Inflation expectations on the rise. The BCRA published the February REM, in which leading analysts revised their inflation expectations upward, cut projections for the exchange rate, and kept peso interest rate expectations relatively stable. Inflation for February is projected at 2.7% m/m (+0.6 p.p. compared with the previous REM) and core CPI at 2.5% m/m (+0.4 p.p.). Meanwhile, the median forecast for the nominal exchange rate stood at $1,429/USD for March (-$73 compared with the previous survey) and $1,707/USD for December, reflecting lower devaluation expectations which—given that prices are still rising at a high pace—could further deepen the decline in the real exchange rate. On the other hand, the TAMAR rate of private banks is projected at 31.3% TNA for March (+1.2 p.p.) and 24.0% TNA for December (+1.6 p.p.), showing relative stability compared with the previous REM. Activity projections indicate that GDP would have grown 0.8% in Q4 2025 (+0.6 p.p.), with expansions of 1.0% and 0.9% in the first two quarters of 2026 (+0.1 p.p. and -0.1 p.p., respectively), consolidating annual growth of 3.4% for 2026 (+0.2 p.p.).

The BCRA continues buying and reserves rise. In the first week of March, the BCRA purchased USD291 M, implying an average of USD58 M per day, showing some moderation compared with February when purchases averaged USD86 M per day. The agricultural sector accelerated its pace of FX sales, settling USD412 M during the week, averaging USD83 M per day, USD10 M above the February pace. These operations, together with an increase in foreign currency reserve requirements, were key in allowing international reserves to rise USD439 M during the week, closing with a gross stock of USD46,003 M, while net reserves would have broken the -USD20,000 M barrier.

Exchange rate remains stable. The official exchange rate traded relatively stable during the week and rose just 0.3%, closing at $1,413.82 and standing 14.4% below the upper bound of the band. The stability in the exchange rate persisted despite global noise reflected in a stronger U.S. dollar worldwide, which has put pressure on emerging market currencies, while the BCRA continues uninterrupted FX purchases in the official market. Financial dollars also increased: the MEP rose 0.4% and the CCL 0.7%, closing at $1,432 and $1,480.5, respectively, while the swap spread rose to 3.4%. Dollar futures advanced along the same lines (+0.7%), and a decline was observed both in traded volume and open interest, which averaged USD1,079 M and USD4,572 M, respectively. As a result, implied rates stood around 27–29% TNA, and the curve prices in an implicit devaluation of 2.2% MoM across all maturities.

ARS-denominated bonds broadly stable. Peso curves traded with some weakness but remained relatively stable during the week, despite the negative global backdrop. Overnight rates posted a limited increase of around 200 bps: both the one-day repo (caución) and the Repo rate stood near 22% NAR, while TAMAR remained close to 31% NAR. In this context, dual bonds stood out, increasing 0.1% during the week. These instruments yield on average TAMAR +2.6%, and current prices imply a TAMAR breakeven between 25% and 27% NAR. CER-linked bonds also increased 0.1%. These securities yield CER +3.1% in the 2026 segment and CER +7.7% in the rest of the curve. At current levels, they price in implicit inflation of 2.1% m/m through April, below both our projections and the REM estimates, and 26.4% cumulative inflation for 2026. Meanwhile, dollar-linked bonds declined 0.2%. These instruments yield devaluation +4%, while the April Lelink currently prices in a 3.7% depreciation over the period. Finally, the fixed-rate curve declined 0.6%, although it eased slightly compared with the previous week: the short end yields 30.6% NAR (2.6% EMR) and the long end 30% NAR (2.5% EMR). Looking ahead to this week, rates should remain broadly stable provided the Treasury does not absorb a significant amount of liquidity in the upcoming auction and if the BCRA stays on the sidelines in open-market operations, in contrast to last week when it intervened through the sale of more than USD300 M of the D30A6 Lelink to contain exchange-rate pressures.

Global backdrop weighs on sovereigns. Sovereign bonds declined 0.6% during the week, affected by an adverse global environment, particularly for emerging markets. Even so, Argentine bonds posted a slightly smaller drop than comparable countries, which fell 0.9% on average. Within the curve, Bonares declined 0.9%, underperforming ARGENT bonds, which fell 0.4%, with the AL35 being the most affected after posting a 1.3% weekly decline. At these levels, country risk closed at 545 bps. Following the correction, Bonares yield 9.0% at the short end and 10.0% at the long end, maintaining a slightly positive slope, while ARGENT bonds offer 7.8% at the short end and 9.6% at the long end, still below double-digit levels and with a steeper curve. The underperformance of local-law bonds widened the legislative spread, with GD30/AL30 reaching 3.7% and GD38/AE38 4.0%. In contrast to sovereigns, Bopreal bonds increased 1.5% during the week, showing greater resilience, with notable gains in Series 3 (+2.2%) and Series 1C (+1.4%), while the curve currently yields between 4.1% and 8.4%, below sovereign levels. Meanwhile, sub-sovereign bonds declined 0.3% during the week, tracking the trend in Treasury debt, although they still post a 2.7% gain year-to-date, with losses led by Buenos Aires 2037 (-0.9%) and Río Negro 2028 (-1.0%), and provincial yields currently ranging between 6.1% and 11.7%. Finally, corporate bonds traded broadly unchanged during the week, with 0.4% declines at the short end of YPF’s curve and 0.4% increases at the long end, offering yields of 6.0%–9.5% under foreign law and 4.5%–8.0% in the local market.

The Merval continues to decline. The Merval fell 1.3% during the week, closing at USD 1,774. In this context, it showed a relatively better performance than the LatAm index, although year-to-date it remains significantly decoupled, posting a 11.4% decline. Banks drove the weekly drop, following negative earnings results that revealed elevated delinquency levels ranging between 3.6% and 8.2% and low returns on equity between -4.6% and 7.3%. Specifically, the stocks that declined the most were Supervielle, IRSA, and Banco Macro, which lost between 8.1% and 10.0%. On the positive side, energy companies led the gains, supported by higher oil prices. The top performers were Transener, YPF, and Ternium, advancing between 6.0% and 7.9%. As for Argentine equities listed on Wall Street, they posted an average decline of 3.2%, led by Supervielle, Corporación América, and Ternium, which dropped between 10.0% and 11.4%, while AdecoAgro, Vista, and YPF gained between 4.2% and 14.4%.

WEEK AHEAD:

• The week begins with the announcement of the conditions for the upcoming Treasury auction, scheduled for Wednesday, in which the Treasury will face maturities of $10.4 trillion in Lecaps and Dual bonds. Recall that the Treasury will once again offer the Bonar 2027, and we expect demand for this instrument to remain strong in the primary market. At the same time, we will closely monitor the Treasury’s financing strategy and whether it continues absorbing liquidity from the market.
• In addition, the City of Buenos Aires will release the February CPI today, providing an initial signal ahead of the national inflation figure to be published on Thursday, currently estimated at 2.6% MoM.