Is the carry trade still on? Investments in pesos recommended by analysts after the latest BCRA REM

The publication of the Market Expectations Survey (REM) for July renewed the economic outlook for the coming months towards the end of the year, along with new strategies that investors can adopt in response to changes in the situation.{#p-1786057404683-96051}

Compared to last month, the new report does not anticipate a sharp jump in the official dollar, nor a rapid decline in inflation for the second half of the year, so the margin for obtaining profits through pure fixed-rate strategies appears more limited.{#p-1786057404683-82059}

The survey, conducted between July 29 and 31 among 45 consulting firms, research centers, and financial entities, estimated inflation at 2% for July, unchanged from the previous report.{#p-1786057404683-41446}

However, those who best predicted this variable over the past months, grouped within the Top 10, expected a rise of 1.9%. Meanwhile, core inflation was calculated at 1.8%, 0.1 percentage points lower than in the previous REM.{#p-1786057404683-44070}

Regarding the dollar, the median of the estimates placed the average wholesale exchange rate at $1.512 for August, practically unchanged from the previous survey.{#p-1786057404683-32288}

However, the main correction appeared towards the end of the year, as the projection for December dropped from $1.673 to $1.652. Thus, analysts expect a year-on-year increase of 14.1%, while the Top 10 projects an even lower rate of $1.605.{#p-1786057404683-49007}

On the side of interest rates, the market also does not expect significant changes. In this regard, the TAMAR of private banks was projected at 22.4% nominal annual for August, equivalent to a monthly effective rate of 1.84%, while for December it was set at 22.2%, just 0.2 points above the previous estimate.{#p-1786057404683-73725}

Dollar, inflation, and rates: what scenario does the REM show {#p-1786057404683-83508}

The combination of these variables creates a scenario without major shocks, although with tighter yields. According to the survey tables, between August and December, the exchange rate would advance around 9%, a variation similar to the projected accumulated inflation for those months.{#p-1786057404683-86289}

Therefore, the market does not expect the dollar to detach strongly from prices for the remainder of the year, although it also does not anticipate a wide margin to sustain carry trade strategies.{#p-1786057404683-92957}

The REM itself allows for an assessment of this loss of attractiveness. In this sense, with a TAMAR that would offer an effective monthly yield close to 1.8% and would remain stable until December, the rate in pesos would remain below the expected depreciation rate.{#p-1786057404683-44697}

Specifically, the wholesale dollar would advance 2.2% in September, 2% in October, 2.6% in November, and 2.1% in December. Thus, the differential between the rate and the increase in the exchange rate would be negative during the four months, with the widest gap in November.{#p-1786057404683-18293}

Moreover, this anticipated acceleration for the dollar would also allow it to surpass monthly inflation during the final stretch of the year. Thus, the exchange rate variation would be 0.4 percentage points above the expected CPI in September, 0.3 points in October, 1 point in November, and again 0.3 points in December.{#p-1786057404683-16331}

However, the relationship reverses when observing the annual accumulated data, as the exchange rate would rise only 14.1% year-on-year in December against a projected inflation of 29.8%. Therefore, the peso would still register a significant real appreciation during 2026.

This combination, marked by a dollar that remains lagging behind prices in the annual accumulated data, but which becomes more expensive month by month above both the rate and inflation during the electoral period, explains why the markets prioritize currency coverage over a pure bet on fixed-rate instruments.

What outlook do market analysts anticipate

In this context, the lower exchange pressure recorded during July allowed for a partial recovery of peso assets. However, **this movement did not imply a widespread return to the carry trade, but rather a greater preference for instruments capable of offering coverage against inflation, rates, or a possible acceleration of the official dollar.

From PPI, it was noted that the global weakening of the dollar, the absence of new catalysts for a compression of country risk, and a possible normalization of short rates could again favor certain local currency securities. Nevertheless, the brokerage firm warned that the demand for currency coverage remained high.

Indeed, the stock of dollar-linked instruments in the public sector held by private hands increased for the second consecutive month to approximately $11.3 billion. Thus, even with a more stable exchange market, investors continued to reinforce protection against a possible correction of the official exchange rate.

At the same time, the dynamic of rates was conditioned by the Treasury auctions. In the last operation, the Government achieved a 144.5% rollover and absorbed around $3.7 trillion, which reduced available liquidity and raised funding costs.

According to Balanz, the one-day rates reached a nominal annual rate of 23.3% before settlement, while subsequently, the collateral rose to 24.9%. This greater volatility also affected Treasury bonds, which recorded price drops of up to 1% in the longer segments of the curve.

Thus, the scenario continues to offer opportunities in pesos, but with a more defensive selection. In the face of a limited carry trade and a persistent demand for coverage, analysts prioritize instruments adjustable over pure fixed-rate positions.

What investment strategies do they see for the coming months

With this scenario, the discussion is not only about whether to remain in pesos or not, but about determining which variable is worth covering.

As the REM projects that the dollar will advance above the TAMAR during the last four months of the year, the markets consider that pure carry trade and fixed-rate instruments offer a limited margin. For this reason, recommendations focus on inflation-adjustable bonds, rates, or exchange rates.

From Balanz, they maintain a preference for CER bonds for short positions and liquidity management, as the implied inflation in the curve is still below their estimates.

Within this segment, TZXM7 stands out, incorporating an average monthly inflation close to 1.65%, compared to the 1.9% projected by the brokerage firm. Thus, the instrument could capture additional returns if disinflation occurs more slowly than the market has discounted.

To extend duration, Balanz favors TXMJ0, a dual bond that pays the higher yield between CER and TAMAR. This structure allows for protection against both higher inflation and a potential rise in short-term rates. In contrast, it considers TMVE8 a more specific alternative for those seeking protection against an acceleration of the official dollar.

PPI also increased its exposure to peso-denominated assets and agreed to select TZXM7 to take advantage of a potential difference between actual inflation and that incorporated in prices.

However, it showed a greater preference for TMVE8, which pays the highest yield between a dollar-linked leg and another linked to TAMAR.

According to its calculations, the instrument offered a dollar-linked IRR of 6.3% and a margin of around 640 basis points over TAMAR. For this reason, PPI included it in its moderate and aggressive portfolios, with a weighting of up to 10%.

In this way, CER bonds gain attractiveness if inflation decreases more slowly, dual CER/TAMAR bonds provide coverage against rising rates, and TMVE8 emerges as the main alternative against an acceleration of the official dollar.

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