AGAINST A MORE COMPLICATED GLOBAL BACKDROP, LOCAL ASSETS CAME UNDER PRESSURE, though sovereign bonds showed healthy resilience supported by the BCRA's solid pace of FX purchases. The main development was once again the exchange rate, which continued to rise despite strong agricultural liquidations — a reflection of demand gaining momentum in an environment where interest rates held steady, underpinned by financial system liquidity stemming from the ongoing stagnation in private credit. On the economic data front, the most significant release was the rebound in tax revenues, though this was not driven by improved activity levels, which continue to show no clear signs of recovery. Market expectations for this year improved relative to April, with lower inflation, higher growth, and a lower exchange rate, supported by optimism on the external front, where exports should allow the current account to reach a surplus exceeding USD 20bn. We believe the worst is behind us in terms of activity and inflation following a very weak first quarter; however, we also believe the best of the FX market environment has already passed, and we expect a slower pace of BCRA purchases and a faster depreciation of the exchange rate relative to inflation and interest rates. This week's focus will be on May inflation data, the Treasury auction, and the FX front — particularly the BCRA's purchase pace and exchange rate dynamics against a more challenging global backdrop of a strengthening dollar.
TAX REVENUES IMPROVED, BUT NOT ON THE BACK OF ECONOMIC ACTIVITY. After nine consecutive months of real declines, May tax revenues finally rose in real terms, driven almost entirely by personal and corporate income tax (IGG) and, to a lesser extent, wealth tax (BBPP), while taxes linked to activity, employment, and trade continued to underperform. Total tax revenues rose 2.3% y/y in real terms, propelled by a 26% y/y real jump in IGG — boosted by a favorable base effect from lower balances due in 2025 due to higher advance payments in fiscal year 2023, an increase in the number of benefits versus last year, and higher advance payment rates for corporate income tax (11.1% this year vs. 8.33% last year) — and by BBPP, which surged 46% y/y, aided by early payments on equity holdings and corporate participations. Trade-related taxes, by contrast, fell 26% y/y: export duties dropped 39% y/y in real terms due to lower tariff rates, while import duties declined 21% y/y reflecting weaker import volumes. Activity-linked taxes fell 4.3% y/y — the second consecutive month of decline across the VAT-DGI, check, and excise subgroup — while employment-related taxes dropped 4.7% y/y, dragged down by falling formal payrolls in both wages and headcount. Over the first five months of the year, national tax revenues are down 4.9% y/y, driven by weaker collections in trade-linked (-25%), employment (-4%), and activity-linked taxes (-2.9%).
MARKET EXPECTATIONS FOR 2026 IMPROVED. The BCRA's Market Expectations Survey (REM) for May showed a broad-based improvement in 2026 projections relative to April: supported by a persistent strengthening in exports, consensus now points to a large trade surplus in a context of fiscal balance and moderate economic growth, allowing for greater exchange rate and interest rate stability alongside lower inflation. On prices, the average projection is for 29.7% y/y inflation, down from 30.9% in April. The December average exchange rate is projected at ARS 1,660, ARS 24 below last month's estimate — likely reflecting the upward revision to the trade surplus forecast, now at USD 20,554m, nearly USD 5bn above April's estimate and double the figure expected at the start of the year. Interest rate expectations were largely unchanged, with the TAMAR seen ending 2026 at 22.1%. GDP growth projections were revised up to 2.9% y/y from 2.7% the prior month, breaking a multi-month streak of downward revisions.
THE BCRA EXCEEDED ITS FX PURCHASE TARGET. The BCRA purchased USD 437m over the week, averaging USD 87m per day — well below the April–May pace of USD 138m per day. The slower pace reflected higher demand — seasonal pickup in retail dollar purchases combined with carry trade position unwinding — while agricultural supply held steady at roughly USD 800m, in line with May's levels. Year-to-date, the BCRA has accumulated USD 10,193m in net purchases, underpinned by stronger energy and mining sector inflows — from both higher exports and external debt issuances — and lower net import demand. Gross reserves closed at USD 47,867m, down USD 326m from the prior Friday, weighed down by the decline in gold prices.
THE EXCHANGE RATE MOVED HIGHER. The official exchange rate rose 2.3% over the week, closing at ARS 1,442.41 — 22.6% below the upper band ceiling of ARS 1,768.68. The pressure on the peso prompted the BCRA to sell dollar-linked securities (TZV26) to contain the exchange rate. Financial exchange rates also advanced: the MEP rose 2.5% to ARS 1,461.3 and the CCL gained 1.7% to ARS 1,513.2, with the FX spread at 3.6%. FX futures followed to a lesser extent, with an average weekly increase of 1.3% and implied monthly depreciation in the 1.7%–2.0% m/m range. Weekly volume closed at USD 1,181m and open interest at USD 3,263m, down from USD 4,406m the prior week.
ARS-DENOMINATED INSTRUMENTS POSTED A MIXED-TO-NEGATIVE PERFORMANCE. Dollar-linked bonds were the best performers, rising 0.1%, with yields reflecting devaluation expectations of +2.9%/+3.6% in the short-to-medium segment; the market is pricing in 0.7% direct depreciation in June (implied exchange rate of ARS 1,451) and 1.6% m/m towards September (implied rate of ARS 1,534). CER instruments declined 0.6%, with real rates at CER -6.7%/-1.8% in the short end and CER +4.3%/+7.9% in the long end; implied inflation stands at 2.4% m/m for May, 1.9% m/m between June and October, and 1.4% m/m from November onward. Dual instruments fell 1.4%, with spreads over TAMAR of around 0.6%–0.7%. LECAPs underperformed, dropping 1.5%, with the curve trading in the 1.8%–2.0% EMR range.
SOVEREIGN BONDS HELD FIRM DESPITE EXTERNAL NOISE. Hard-dollar sovereign debt closed with modest gains (+0.1% on average) amid a global backdrop that deteriorated toward week's end. Despite this, country risk remained relatively stable, closing at 495 bps, with the spread over the EMBI Latam at around 234 bps. Bonares rose 0.2%, with the short end leading — AO27, AL29, and AL41 up 0.7% — while the long end softened; the curve yields between 4.5% and 10.0%. Globales were essentially unchanged (+0.02%), with GD35 and GD38 declining (-0.2%); the curve yields between 5.5% and 9.1% in YTM terms. Bopreales outperformed sovereigns, rising between 0.7% and 1.4% — BPD7C the standout — while BPA8D was the only detractor (-0.4%), with yields ranging from 7.3% to 8.1%. Provincials eased 0.1% on average, though La Rioja 2028 stood out with a 5.2% gain while the rest of the curve was mostly lower; average yields stand at 8.8% YTM. Corporates gained 0.2%, with yields of 4.9% under Argentine law and 7.3% under New York law.
EQUITIES HAD A ROUGH WEEK. The Merval fell 2.6% in pesos and 4.9% in dollar terms, closing at USD 2,028 — underperforming Brazil (-3.5%) but outperforming broader LatAm (-5.2%). Energy was the only sector in positive territory, while construction, communications, and industrials led the declines. On the individual stock side, YPF (+0.9%) and Mirgor (-0.9%) were the most resilient, while Sociedad Comercial del Plata (-11.9%), TGN (-9.5%), and Loma Negra (-9.5%) led the losses. Argentine ADRs listed on Wall Street fell 5.2% on average; YPF (+0.5%) and Vista (+0.1%) were the only gainers, while Telecom (-10.5%), Cresud (-8.5%), and Loma Negra (-8.4%) were the biggest laggards.
WEEK AHEAD
- The week's macro agenda features May tax revenue. The series has been deteriorating in real terms, with tax receipts failing to keep pace with nominal spending growth, keeping the adjusted fiscal surplus under pressure.
- In markets, attention will remain on the BCRA's pace of purchases — which closes May at a sustained level — and on any developments surrounding guaranteed multilateral financing, whose resolution could provide further impulse to sovereign debt, provided the global backdrop continues to cooperate.
