Despite the conflict in the Middle East continuing to set the tone for global markets and dampening investors’ appetite for emerging market risk, local assets posted a solid week, although monthly and year-to-date performance remain modest. FX stability persisted, with the central bank purchasing foreign currency, alongside a decline in the exchange rate and interest rates, and a rebound in bonds and the equity index. The FX front remains stable, with the central bank maintaining its buying streak, supported by an improved goods trade balance due to lower import payments and higher inflows from financial and carry trade borrowing, which offset ongoing outflows from dollarization and elevated real services payments. Additionally, the Treasury achieved a high debt rollover ratio at a lower cost and extended duration, albeit with a higher share of indexed debt. It also resumed issuing dollar-denominated debt in the local market, albeit at higher rates. The liquidity withdrawal effect would be offset by the reduction in reserve requirements announced by the central bank starting in April. Meanwhile, activity data show a two-speed economy, with primary sectors performing strongly while urban, labor-intensive sectors remain weak, a situation exacerbated by the persistent decline in real wages. This, combined with domestic political noise surrounding the Chief of Cabinet, is weighing on the government’s approval ratings, which, although still relatively high, have been declining in recent months. In a shortened week due to Easter holidays, attention will remain focused on the international backdrop, private estimates of March inflation—which are being revised upward and are expected to exceed 3% m/m—and the evolution of the exchange rate, which continues to decline in real terms.

Two-speed activity. In January, the EMAE rose 0.4% m/m and 1.9% y/y. Growth was almost entirely driven by primary sectors: fishing (+50.0% y/y), agriculture (+25.1% y/y), and mining (+9.6% y/y), which together contributed 1.8 percentage points to the annual increase. On the downside, trade (-3.2% y/y), electricity, gas and water (-3.0% y/y), manufacturing (-2.6% y/y), and public administration (-1.6% y/y) subtracted 0.9 percentage points, leaving a modest net result. This performance confirms a pattern observed since mid-last year: GDP growth driven by agriculture, energy, and financial intermediation, while more employment-intensive urban sectors remain stagnant or in contraction.

Wages continue to decline. In January, the wage index published by INDEC increased 2.5% m/m—with registered private sector wages rising 2.1% and public sector wages 1.8%—compared to 2.9% inflation in the same period. This marks the fifth consecutive month in which formal incomes have lagged CPI, resulting in a cumulative loss of purchasing power of around 3.3% over that period and nearly 8% since the start of the current administration. On a y/y basis, registered wages rose 29%, below the 32.4% accumulated CPI. This dynamic reflects that economic growth is not translating into improvements in real income for formal workers, as the sectors driving GDP have relatively low employment intensity. Without a recovery in real wages, private consumption is unlikely to regain the dynamism needed for a broad-based recovery beyond primary sectors.

Expectations deteriorate. The acceleration in inflation, higher financing costs, labor market deterioration, and domestic political noise are already being reflected in confidence indicators and government approval. In March, the Consumer Confidence Index (CCI) from Universidad Di Tella fell 5.3% m/m and stood 4.7% below its level a year earlier. Regionally, Greater Buenos Aires fell 9.3% and the City of Buenos Aires dropped 7%, while the interior rose 1.3%. Government confidence declined 3.5% relative to February and stood 5% below March 2025, with approval at 46%. Compared with the same point in the previous two administrations, this level remains well above that of Alberto Fernández and is broadly in line with that of the Macri administration.

The central bank keeps buying. Over the past week, the central bank purchased USD 246 M, bringing March net purchases to USD 1,071 M and nearly USD 3.8 B year-to-date. Agricultural FX supply averaged USD 120 M per day (USD 364 M over the three trading sessions), marking a notable acceleration from previous weeks (USD 80 M daily). The streak of FX market interventions extended to 56 consecutive sessions, averaging USD 71 M per day. The strong FX accumulation is supported by an improved goods trade balance and increased inflows from financial borrowing, more than offsetting demand for external assets and payments for real services and income, which remain elevated amid still limited FDI and portfolio inflows. This is confirmed by February’s balance of payments data: the trade balance reached nearly USD 4 B in the first two months, compared to USD 1.3 B a year earlier, driven by a 20% y/y drop in import payments—due to lower volumes and USD 1 B in additional trade financing—while export inflows rose 4.4% y/y. The real services and income account posted a USD 2.7 B deficit, slightly above last year, resulting in a current account surplus (excluding public sector operations) of USD 1.38 B versus a USD 1.1 B deficit a year earlier. This was partially offset by a wider financial account deficit, as higher inflows from loans and FDI (USD 4.4 B, double last year) were more than offset by demand for external assets, which totaled USD 4.86 B in the first two months of 2026.

Reserves fail to recover. Despite sustained FX purchases, international reserves have not increased. Gross reserves closed at USD 43.7 B last week, down USD 94 M w/w and USD 1.76 B over the month. This decline is largely explained by a drop in gold prices, which accounted for USD 1.56 B of the monthly loss. More broadly, FX purchases have not translated into higher net reserves due to payments to international organizations, BOPREAL maturities, and Treasury debt obligations. Net reserves stand at around USD -1.9 B under the traditional definition and close to USD -20 B under the IMF methodology.

The exchange rate moves away from the ceiling. The official exchange rate fell 1.2% over the week to ARS 1,376.1, down 2.3% in March and now 20% below the upper bound of the FX band. Financial FX rates moved in the opposite direction: MEP rose 2.1% and CCL 1.1%, closing at ARS 1,426.3 and ARS 1,481.7, respectively, with the spread at 3.9%. FX futures declined 1.8% over the week, pricing in an implied depreciation of 2.2% m/m on average across contracts, with implied rates around 27% NAR. Trading volumes remained broadly stable, although they rose to USD 1.2 B in the last two sessions, while open interest edged down to USD 4.896 B.

The Treasury extends duration and lowers rates. In March, the Treasury again issued more debt than maturities, achieving the strongest net financing result of the year in pesos. In the first auction (March 12), it refinanced 108.1% of maturities, absorbing ARS 0.78 Tn, while in the second (March 27), with ARS 12.53 Tn in bids against ARS 7.97 Tn in maturities, rollover reached 138.5%, generating ARS 3.07 Tn in net financing. Overall, March rollover reached 121.9% (vs. 108.5% in February), withdrawing ARS 3.85 Tn. Beyond volumes, two aspects stand out: duration extension and rate dynamics. The weighted average maturity rose to 413 days from 169 days in February, driven by strong demand for CER instruments maturing in 2027 and 2028, pushing the average maturity to 562 days in the latest auction. Meanwhile, the average auction rate declined to 32% NAR (from 33.5% in February and 35.4% in January), broadly in line with secondary market yields. In addition, USD 150 M of AO27 and USD 150 M of AO28 were placed, the latter at a higher 8.86% IRR given its maturity beyond the current presidential term, reflecting an additional risk premium, albeit consistent with comparable BOPREAL Series 4–B instruments. To date, AO27 has accumulated USD 650 M and AO28 USD 150 M under a program targeting up to USD 2 B for each instrument. Overall, March showed a Treasury successfully extending its peso debt profile at declining rates, while advancing in the placement of dollar-denominated debt to meet July maturities.

Liquidity and reserve requirement cuts. In a context of higher liquidity, short-term rates continued to compress: TAMAR fell from 31% NAR at the beginning of the month to 26.5% NAR, while call and repo rates remain around 20% NAR, the level at which the central bank continues to absorb pesos in the repo window. In this framework, the central bank announced that, as of April 1, it will not extend the temporary five-percentage-point increase in reserve requirements in place since August 2025, which had brought requirements to their highest level in three decades. Reserve requirements on demand deposits will decline from 50% to 45%, covering checking accounts, savings accounts, repos, and money market funds. The measure aims to revive credit, which has posted three consecutive months of contraction, although it comes at a time when inflation remains sticky around 2.9% m/m and nominal rates between 2.1% and 2.2% EMR are already in negative real territory. Releasing reserve requirements in this context paves the way for rates to remain contained, but carries the risk that the additional liquidity may either support activity, fuel price inertia, or both.

Bonds on the rise. ARS-denominated debt posted a positive week. CER bonds led gains with an increase of 1.1%, with the curve continuing to compress yields: the index, which at the end of February yielded CER +4.4%, closed the week with negative real rates out to December 2026, with the short end reaching as low as CER -11% and the long end averaging CER +5%, implying a breakeven inflation of 2.6% m/m for the next two months and 28% cumulative in 2026. Lecaps rose 0.1% over the week, with EMR compressing from 2.4%-2.5% at the end of February to 2.1%-2.2% EMR, while Bonte declined 2.2% over the week, reversing part of the strong performance seen previously. Dual bonds advanced 0.0% on the week, yielding an average spread of TAMAR +2%. Dollar-linked bonds lagged, falling 2.2% over the week, in line with the decline in FX levels; they yield devaluation -2% and price in an implied depreciation of 3% toward April and 7% toward June.

Improvement in sovereigns. The hard currency fixed income market found some relief during the week, with Argentine sovereign bonds rising 0.6%. This weekly gain took place in a context where comparable assets declined 1.6%. As a result, country risk compressed by 8 bps to 615 bps, leaving the spread versus EMBI Latam at around 320 bps. The weekly performance was driven by the long end of the Global and Bonares curves, with gains of 2.2% for GD46 and 1.8% for AL41. Yields currently range between 8.8% at the short end and 10.8% at the long end for Bonares, while Global bonds stand at 6.5% and 10.3%, respectively. As for BOPREALs, they rose for the second consecutive week by 0.9%, driven by Series 3 (+1.7%). The BCRA curve currently yields between 4.1% and 8.5%. In contrast, provincial bonds declined 0.2% over the week, dragged by the Buenos Aires 2037 bond, which fell 0.9%. The segment offers yields ranging from 6.2% to 12.8%. Corporate bonds declined 0.4% over the week; under local law, the largest drop was seen in Pluspetrol 2030 (-6.4%), while under international law Tecpetrol 2033 fell 1.2%. Corporate yields under local law range between 3.0% and 7.4%, while those under international law offer between 6.6% and 9.4%.

Energy supports the Merval. The Merval rose 2.5% in pesos and 2.6% in dollar terms over the week, closing at USD 1,886. While it is down 5.8% YTD in USD terms compared to an 11.2% increase in the Latam equity index, since the onset of the Middle East conflict the Merval has gained 4.9% in USD, while the Latam index declined 7.1%. This was driven by the strong rally in international energy prices, benefiting energy and utilities companies, which together account for 38% of the index. This was partially offset by declines in financial stocks—representing 36% of the index—with notable losses in Supervielle (-10.8%), Macro (-8.3%), and Galicia (-3.9%). Argentine equities listed on Wall Street rose 2.1% over the week.

WEEK AHEAD:

• The week will be shortened due to the Easter holidays, with a limited macroeconomic agenda. On Wednesday, March tax collection data will be released, in a context where tax revenues have been posting consecutive real declines.
• Beyond the data calendar, the market will closely monitor the evolution of the exchange rate, the dynamics of interest rates, and any developments related to the conflict in the Middle East and its impact on emerging market assets.