🇦🇷💵💶Great article that talks about carry trade in Argentina and the risks/rewards.

The US Dollar rose 10% in the past couple of days, erasing the gains of almost four months of carry trade. 

The gap settled at higher levels and, given the current value of the dollar, some analysts see a better entry point to carry trade.

Analysts at Delphos Investments believe that, with the recent 10% increase in financial dollars, carry trade is once again an attractive alternative.

"In an optimistic scenario, with a crawling peg of 1% per month and a gap of 5%, the Lecap as of June 2025 (S30J5) could yield 18% in dollars, with a country break-even risk of 500 basis points. This level, consistent with greater exchange rate stability and disinflation, would bring Argentina's country risk closer to the region's average," they said.

Juan Manuel Franco, chief economist of Grupo SBS, explained that carrying out strategies in pesos has risks, but that they could still be winners.

"The rise of the CCL erased gains of almost 4 months of carry trade, leaving in evidence, once again, that carry trade investment strategies have these risks. While this does not mean that profits can no longer be made with carry trade positions, what happened serves to show that the strategy carries risks," Franco said.

"There is value in carry trade strategies as long as the investor assumes the risks of doing so in a currency that was strongly appreciated throughout the year and in a context in which, although net reserves have improved in recent months, they remain negative. Thus, short-term carry positions can be winners with Lecaps of the short stretch (April-May) while the most optimistic about inflation will see value in long Boncaps," he said.

Juan Pedro Mazza, Cohen's strategist, said that in the short term, the carry trade should continue to generate positive returns in dollars, supported by the Central Bank's intervention in the foreign exchange market.

However, he warned that investments in pesos carry risks that must be evaluated and that precisely, the risk-return ratio of the carry trade is unattractive.

"If the gap remains firm, a 30-day Lecap will offer a monthly dollar yield of 0.9%. Annualized, this return is equivalent to TNA 11% per year, something very similar to what Treasury and Central Bank bonds pay. However, if the gap increases by five percentage points to 17%, the return on this investment could be transformed into a loss of 3.4%, which translates into an annualized -34%," he warned.

📣 Probably the most important part of all of this is "the carry trade should continue to generate positive returns in dollars, supported by the Central Bank's intervention in the foreign exchange market".

We would argue that no Central Bank of any country should be intervening in their currency. True market price is what it will trade at floating free.