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Dimitri Vulis
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In Argentina (and a few other emerging markets), a cross-currency swap is somewhat liquid (much less so than in was before the most recent sovereign default).

You can find someone to trade 2 year fixed ARS for floating USD (LIBOR; will probably be SOFR soon).

2 years ago you could easily find someone for 5 year fixed ARS for floating USD (LIBOR).

The ARS fixed rate for such swaps is observabe (in interdealer brokers runs if not always Bloomberg terminal). But you can't decompose it into onshore swap rate plus cross-currency basis the way you can in most markets.

However Argentinians (and many other emerging markets) just don't trade fixed-for-float ARS swaps. There are some floater bonds that reset from a rate called BADLAR. But no one trades BADLAR swaps. I tried to have a BADLAR curve, but there is not enough data in the prices of the floater bonds to get a curve.

Cross-currency swaps and FX forwards in most EM currencies, not just ARS, are usually offshore non-delivery (you observe the spot rate 2 days before each cash flow, calcuate net USD flow, and pay or receive that) and external-law rather than local-law. Only major currencies like EUR/JPY/GBP/CHF are usually physical delivery.

The rationales for offshore NDFs are: it's an operational pain to physically pay/receive non-CLS currencies. If there's a dispute, you want to deal with it in London or New York court, not local EM court. You don't want the local government in the future to restrict what you can do with the currency (cross-border risks sometimes called transferability and convertibility). Even if you're trying to hedge some cash flows where you expect to pay or receive physical EM currency, you don't quite flatten the cross-border risk with an offsetting physical settlement trade. Argentina is nothing special with respect to these rationales.

In Argentina (and a few other emerging markets), a cross-currency swap is somewhat liquid (much less so than in was before the most recent sovereign default).

You can find someone to trade 2 year fixed ARS for floating USD (LIBOR; will probably be SOFR soon).

2 years ago you could easily find someone for 5 year fixed ARS for floating USD (LIBOR).

The ARS fixed rate for such swaps is observabe (in interdealer brokers runs if not always Bloomberg terminal). But you can't decompose it into onshore swap rate plus cross-currency basis the way you can in most markets.

However Argentinians (and many other emerging markets) just don't trade fixed-for-float ARS swaps. There are some floater bonds that reset from a rate called BADLAR. But no one trades BADLAR swaps. I tried to have a BADLAR curve, but there is not enough data in the prices of the floater bonds to get a curve.

In Argentina (and a few other emerging markets), a cross-currency swap is somewhat liquid (much less so than in was before the most recent sovereign default).

You can find someone to trade 2 year fixed ARS for floating USD (LIBOR; will probably be SOFR soon).

2 years ago you could easily find someone for 5 year fixed ARS for floating USD (LIBOR).

The ARS fixed rate for such swaps is observabe (in interdealer brokers runs if not always Bloomberg terminal). But you can't decompose it into onshore swap rate plus cross-currency basis the way you can in most markets.

Argentinians (and many other emerging markets) just don't trade fixed-for-float ARS swaps. There are some floater bonds that reset from a rate called BADLAR. But no one trades BADLAR swaps. I tried to have a BADLAR curve, but there is not enough data in the prices of the floater bonds to get a curve.

Cross-currency swaps and FX forwards in most EM currencies, not just ARS, are usually offshore non-delivery (you observe the spot rate 2 days before each cash flow, calcuate net USD flow, and pay or receive that) and external-law rather than local-law. Only major currencies like EUR/JPY/GBP/CHF are usually physical delivery.

The rationales for offshore NDFs are: it's an operational pain to physically pay/receive non-CLS currencies. If there's a dispute, you want to deal with it in London or New York court, not local EM court. You don't want the local government in the future to restrict what you can do with the currency (cross-border risks sometimes called transferability and convertibility). Even if you're trying to hedge some cash flows where you expect to pay or receive physical EM currency, you don't quite flatten the cross-border risk with an offsetting physical settlement trade. Argentina is nothing special with respect to these rationales.

Source Link
Dimitri Vulis
  • 13.2k
  • 3
  • 21
  • 60

In Argentina (and a few other emerging markets), a cross-currency swap is somewhat liquid (much less so than in was before the most recent sovereign default).

You can find someone to trade 2 year fixed ARS for floating USD (LIBOR; will probably be SOFR soon).

2 years ago you could easily find someone for 5 year fixed ARS for floating USD (LIBOR).

The ARS fixed rate for such swaps is observabe (in interdealer brokers runs if not always Bloomberg terminal). But you can't decompose it into onshore swap rate plus cross-currency basis the way you can in most markets.

However Argentinians (and many other emerging markets) just don't trade fixed-for-float ARS swaps. There are some floater bonds that reset from a rate called BADLAR. But no one trades BADLAR swaps. I tried to have a BADLAR curve, but there is not enough data in the prices of the floater bonds to get a curve.