Inflation complicates, but the IMF supports. A good week for local assets. Sovereign bonds consolidated their recovery and country risk approached 500 bps, while the peso curve continued to be driven by CER-linked bonds in a context where the exchange rate kept falling. The Treasury once again closed a successful auction, managing to extend maturities — albeit at the cost of greater indexation and secondary market premiums. The exception was the Merval, which felt the impact of the oil price collapse. The government is holding firm to its fiscal rule, offsetting lower revenue with equivalent spending cuts, while the BCRA continues buying FX and rebuilding international reserves, and secured the green light from the IMF and other international organizations that have pledged support to meet debt maturities while bypassing international capital markets. Despite the favorable asset performance, fundamentals look increasingly strained: inflation accelerated, real wages are falling, and activity remains soft — particularly in urban centers. This is eroding confidence in the government and flashing a yellow light for the months ahead. Beyond the global backdrop — whether tailwind or headwind — this week’s focus will remain on the FX market and the release of key indicators, including March’s FX balance and February’s EMAE, which is expected to show a significant contraction.

Wages continue to lag inflation. In February, registered wages rose 2.3% m/m — vs. inflation of 2.9% m/m — resulting in a real decline of 0.6%, marking six consecutive months of losses totaling nearly 6%. Over the last twelve months, wages rose 27.9% while prices increased 33.1%. Private formal sector wages were the most lagged, up 1.6% m/m, followed by the public sector at 2.3% m/m — with national public wages barely rising 0.6% m/m and provincial wages up 2.9% m/m. Informal private sector wages rose 4.6% m/m — a figure that carries a six-month lag. The persistent erosion of purchasing power is a heavy drag on consumption and is amplifying loan delinquency rates.

Inflation accelerated. In March, the national CPI rose 3.4% m/m, bringing the year-to-date increase to 9.4% — nearly the entire amount that the 2026 Budget had projected for the full year — and 32.6% over the last twelve months. The reading was the highest in the past year and came in well above market expectations of 3.0% m/m. It was driven by regulated prices, which rose 5.1% m/m — pushed mainly by increases of 12.1% in education, 5.9% in public transport, and 5.7% in fuel — while core CPI rose 3.2% m/m, influenced by a 4.4% increase in food prices. Seasonal prices provided a partial offset, rising just 1.0% m/m, helped by a 4.0% decline in fruit and vegetable prices. Wholesale prices also accelerated, matching the CPI reading — driven primarily by a 27.3% m/m surge in crude oil and natural gas, which contributed 2.02 pp — and accumulating a 27.9% increase over the last twelve months. For April, we expect some moderation, though the floor is around 2.5% m/m. This weighs on real wages and constrains consumption, while simultaneously eroding the real exchange rate and pushing real interest rates further into negative territory.

The fiscal rule is non-negotiable. Revenue declines are matched by equivalent spending cuts. In March, the National Public Sector recorded a financial surplus of 0.04% of GDP and a primary surplus of 0.1%, bringing Q1 cumulative balances to +0.15% and +0.4% of GDP, respectively. This was achieved in a context where March revenues fell 6.0% y/y in real terms, driven mainly by export duties (-34.0% y/y) and income tax (-24.0% y/y). The key to achieving the March surplus was a sharp contraction in primary spending, which fell 6.0% y/y in real terms through steep cuts in transfers to provinces (-69.0% y/y), economic subsidies (-50.0% y/y), and public works (-24.0% y/y), while pensions including the bonus remained flat. Interest payments also declined 3.0% m/m in real terms, accumulating an 8.0% drop over the quarter.

The pace of FX purchases remains strong. Over the past week, the BCRA purchased USD 595 M, bringing the month-to-date total to USD 1,634 M — equivalent to a daily pace of USD 149 M, well above March’s average of USD 84 M/day. Purchases were underpinned by agribusiness supply, which liquidated USD 560 M in the last week alone and USD 1,290 M month-to-date, complemented by higher net inflows from financial loans. With this performance, net purchases year-to-date stand at USD 6,020 M, with the agricultural sector contributing USD 6,400 M. These interventions allowed gross international reserves to rise USD 356 M over the week to USD 45,791 M, while net reserves stand at approximately -USD 1,500 M under the traditional definition and around -USD 16,700 M under the IMF methodology.

IMF: second review and adjusted targets. This week, the second program review was approved at the staff level, subject to Board approval, which would unlock a USD 1,000 M disbursement. On the fiscal front, the agreement maintains cash-basis balance and a primary surplus of 1.4% of GDP, down from the 2.2% envisioned in the previous review; the Fund underscores the need for tax and pension reform to improve the quality of the adjustment. On the monetary side, a restrictive stance is maintained with quarterly monetary targets consistent with disinflation, while on the FX front, net reserve accumulation of USD 8,000 M is targeted for 2026 (from -USD 16,000 M to -USD 8,000 M under the program’s methodology), of which approximately USD 3,500 M has already been accumulated. However, given that USD 11,000 M in debt repayments are due, the government will need to source USD 15,500 M to meet the target. The framework contemplates local dollar-denominated debt issuances, Treasury asset sales, BCRA REPO operations, and external loans with potential participation from multilateral organizations.

The official exchange rate extends its decline. The official exchange rate fell 1.0% over the week to close at $1,360, placing it 23.7% below the top of the band. Financial FX rates diverged: the MEP rose 0.7% to close at $1,421, while the CCL fell 1.0% to $1,464, with the spread narrowing sharply from nearly 5% to 3.0%. FX futures contracts followed the official rate lower, falling an average of 1.7%, with implied monthly depreciation in the 1.8%–1.9% m/m range across the curve, equivalent to rates of 22%–23% NAR.

Rates and reserve requirement easing. The BCRA introduced two changes to the reserve requirement framework: it reduced the minimum daily peso integration ratio from 75% to 65% — the second consecutive cut following the November 2025 reduction — and eliminated the 60-day minimum holding period for eligible Treasury securities. In parallel, it reactivated the active repo facility at 25% TNA to provide liquidity, while maintaining the passive repo floor at 20% TNA. In this context, overnight rates — repo and one-day caución — remain around 20% NAR, while the TAMAR, down nearly 3 pp since end-March, closed Friday at 23.1% NAR. The reserve requirement easing broadens banks’ capacity to expand credit, though the demand impact will remain constrained by an economy that has yet to show a sustained recovery.

Longer tenors and dollar-denominated financing. In the first April auction, the Treasury achieved a rollover ratio of 127%, securing ARS 2.11 trillion in net financing and extending average maturity to 593 days, up from 414 days in March. This duration extension came alongside greater indexation — with 55% of the amount awarded in inflation-linked instruments (TAMAR-linked exceeding CER) — and required the Treasury to offer secondary market premiums to attract demand at longer tenors. In the hard dollar segment, USD 250 M was placed per instrument between the first and second rounds, at yields of 5.12% YTM for the AO27 and 8.5% YTM for the AO28, bringing the cumulative amount placed to approximately USD 1,431 M across both instruments — still below the USD 2,000 M per bond target contemplated in the program. Meanwhile, the search for complementary financing is accelerating: the World Bank confirmed it is working on a guarantee of up to USD 2,000 M, with a broader multilateral framework that could scale to approximately USD 4,000 M to facilitate market access. On that basis, Caputo outlined that a combination of these instruments, together with Bonar issuances and a potential privatization program, could form an overall package of close to USD 10,000 M aimed at strengthening refinancing capacity ahead of upcoming maturities.

A good week for peso bonds. The peso curve had a positive week, led by CER-linked bonds, which rose 2.1% and compressed real yields into negative territory through mid-2027: the short 2026 segment yields CER -10% / -4% on average, the 2027 segment trades between CER -2% and CER +2%, and longer tenors around CER +6% / +7%. The March inflation print surprised to the upside, though breakeven inflation expectations did not adjust materially: the market is pricing in 2.5% m/m for April, 2.0%–2.1% m/m for May through October, and a cumulative 30.4% for 2026. LECAPs rose 1.7% on the week, compressing rates toward the 1.6%–2.0% TEM range across the curve. Dual-currency notes advanced 1.5%, with spreads over TAMAR around 0%–1%, while the implied breakeven rate stands at approximately 21%–23% TNA. Dollar-linked bonds were the week’s underperformers, falling 0.2% in line with the decline in the official exchange rate; at current prices they yield devaluation +3.5% / +7.0% and imply an exchange rate of $1,427.

Country risk on the way down. Hard dollar sovereigns posted their second consecutive week of gains, rising an average of 0.6%, though underperforming comparables which advanced 1.4%. Despite this, the spread versus the EMBI Latam narrowed 15 bps to 255 bps. The supportive global backdrop and the BCRA’s MLC purchases continued to act as tailwinds for sovereign debt. Against this backdrop, country risk closed at 519 bps, down 34 bps from the previous week. Month-to-date, sovereigns have gained 4.8%. Longer-dated bonds continue to lead the curve: the AL35 rose 1.2% and the GD38, 0.9%. In yield terms, Bonares trade between 7.2% (short end) and 9.6% (long end), while Globals trade in the 5.7%–9.2% range. The legislative spread narrowed to 0.8% for the GD30/AL30 pair, from 2.3% the prior week. Bopreales fell 1.9% on the week, though they are up 0.2% month-to-date. The decline was driven by Bopreal Series 3 (-3.9%) and Bopreal Series 1A (-2.0%). The BCRA curve currently yields between 2.6% and 7.3%. Provincial bonds followed the positive sovereign trend, rising 0.9% on the week and 2.5% month-to-date, with the Buenos Aires 2037 again standing out with a 1.9% gain. The segment offers yields ranging from 4.9% to 11.6%. Corporate bonds also performed positively, advancing 0.4% on the week and 0.8% month-to-date. The gains were led by foreign-law instruments (+0.5%), while local-law bonds were flat. Top performers included the YPF 2034 (+1.2%) and Pampa 2037 (+1.0%). Local-law bonds yield an average of 4.9% YTM, compared with 7.5% YTM on average for their foreign-law counterparts.

Merval decouples. Dragged down by energy sector losses following the collapse in oil prices, the Merval moved against global trends and fell 3.6% in peso terms and 2.2% in CCL dollar terms, closing at USD 1,984. Month-to-date it is up 3.1%, underpinned by a strong rally in banks amid a broader risk-on global environment. On the week, the biggest decliners were CEPU (-7.8%), Pampa (-7.5%), and Edenor (-5.6%), while banks and communications partially offset losses, with VALO (+5.7%), Telecom (+3.6%), and Banco Macro (+2.9%) leading the gains. Among ADRs listed on Wall Street, the average decline was 1.0% — a softer drop than in the local market — with AdecoAgro (-13.3%), CEPU (-7.7%), and Pampa (-7.4%) leading losses, while Globant (+15.5%), Bioceres (+7.9%), and MercadoLibre (+4.6%) posted the largest gains.

WEEK AHEAD:

• Attention this week will remain on the FX market, where agribusiness liquidation is expected to accelerate as we move into the peak of the large harvest season, providing a comfortable FX cushion to sustain current exchange rate stability.
• The first signals of bank rate reductions to stimulate private credit — which has been contracting for three months — are also anticipated.
• On the data front, highlights include the March merchandise trade balance — released today — and the March FX balance of payments, due Friday.
• February’s EMAE activity index, due Wednesday, is also in focus and expected to print a weak reading.

‍