Argentina hinders debt swap by not offering puts on peso bonds

Argentina’s Central Bank isn’t offering put options for peso bonds the government is selling this week in a record debt swap, a move that’s discouraged private banks from participating in the deal, according to two people with direct knowledge.

The decision not to include puts — pledges to buy back bonds if they fall below a certain price — is key because they’re one of the main tools to persuade banks to swap peso bonds maturing this year for new notes that stretch between 2025 and 2028, the people said.

While Argentina’s Treasury is conducting the swap, the Central Bank oversees the puts and informed bank executives Monday the instrument wouldn’t be offered during the auction. The full terms are due to be released Tuesday.

The Economy Ministry’s press office didn’t respond to a request for comment about the puts.

Argentina began its record peso debt swap Monday in a bid to refinance almost all of its 2024 maturities over the next four years, providing a temporary respite for President Javier Milei’s government. In a surprise move that night, the Central Bank cut its benchmark interest rate to 80 percent from 100 percent, as monthly inflation cools and the peso strengthens against the US dollar in parallel markets.

The Economy Ministry published a list of bonds it intends to buy back and sell lat Friday, saying it will receive offers from investors until Tuesday at 3pm local time (2pm ET). The swap could amount to 55 billion pesos (US$65 billion), according to Juan Manuel Truffa, partner and director of local consultancy Outlier.

Put options have been used in the country for years to boost the attractiveness of bonds at regularly scheduled auctions. As of the end of February, they had soared to 16.3 trillion pesos, 11.3 billion more than when Milei took office three months ago, according to estimates by local brokerage PPI.

However, the sharp increase of put options has concerned some investors, who see the condition in bond contracts potentially fueling inflation if the options are redeemed for cash, forcing the Central Bank to print money. The instrument has allowed Economy Minister Luis Caputo to not only refinance all maturing debt, but also to sell new bills to bankroll spending.

More than 70 percent of Treasury bond holdings in pesos included in the debt swap are held by the public sector, which includes the Central Bank, social security agency ANSES and Banco Nación, according to estimates by consulting firm 1816 Economía & Estrategia.

“A floor of acceptance of the swap around these values of approximately 65 percent could be assumed,” Ariel Sbdar, chief executive officer of local broker Cocos Capital, said on X, the social media platform formerly known as Twitter.