How does Argentine Fixed Income work? Find out everything now!
Learn all about Argentine Fixed Income, how it works, and what the advantages and risks are in investing in this financial market. Read until the end and check out all the details!
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Want to find out more about how Argentine Fixed Income securities work? We have put together a content with all the information to satisfy your curiosity.
In addition to showing the main types that exist in the neighboring country in this text, we will also inform you about how to invest in fixed income securities abroad.
Continue reading and follow the main information about this financial application, main types, advantages, disadvantages caused by the risks of the financial market.
What is fixed income and how does it work?
Fixed income is a safer investment category on the market, as it has predictable profitability that is determined at the time of contracting. Therefore, most of the time we know how much we will receive from the beginning.
In Argentina, fixed income is debt divided by the number of creditors who bought the “small pieces of debt” and such pieces are known as debt securities or just securities. Rules, conditions and economic indicators vary from country to country.
However, when it comes to fixed income, the pattern is always the same: the investment is made up of financial assets with defined remuneration rules.
In other words, they are investments whose return is known in advance (pre-fixed) or that depend on the behavior of an indicator (post-fixed) such as Selic rate, for example, which is the basic interest rate of the Brazilian economy.
Types of Fixed Income in Argentina
Fixed Income Types in Argentina are classified according to the issuer, taking into account the investment term and return. Let's find out what the options are.
Public Fixed Income
In principle, this type of Fixed Income are bonds issued by states, communities and other public bodies.
The main objective is to finance expenses and supplement tax revenues. In fact, the country's public debts are traded directly on the Public Debt Market and are supervised by the Bank of Spain. The main securities are: Treasury Bills, Government Bonds and Obligations.
Private Fixed Income
Private Fixed Income is a security to finance projects and increase capital, listed on the AIAF Market with supervision by the Securities Market. The following types of securities are among the types: Corporate Promissory Notes, Private Corporate Bonds, Subordinated Bonds, Mortgage Bonds and Securitisation, and Land Bonds.
Short Term Fixed Income Argentina
Short-term fixed-income securities have a maximum term of 18 months and are acquired on the money markets. In other words, they have very high liquidity since they can be easily sold on the secondary market. However, in terms of return, the amount paid is usually lower than that of long-term securities.
Medium to Long Term Fixed Income
On the other hand, medium to long-term fixed income securities are traded on the capital market and the investment has a duration of more than two years. The profitability is much higher, but the risks of loss are higher.
Explicit Fixed Income
Fixed Income with Explicit Yield makes periodic payments to the investor in the form of interest, similar to our fixed income investment. Direct Treasury with Semiannual Interest. In Argentina, payment is stipulated at the time of the contract on a half-yearly or annual basis.
Implicit Return Fixed Income
Also known as Zero Coupon, this type of fixed income has a return determined by the difference between the initial amount paid on the security and the amount on the day of redemption. In this way, interest is paid in a single opportunity at the time of settlement.
Advantages and Disadvantages
Everything in our lives has advantages and disadvantages, and with fixed income this would not be different either. After all, if on the one hand the investment has a good profitability, on the other hand it is not free from risks in the Financial Market.
Advantages
- Predetermined payment on a stipulated date;
- There is a good variety of fixed income securities involving rates and terms;
- Depending on the country's economy, profits tend to be quite advantageous, as was the case in 2019.
Disadvantages
- There is a possibility that the issuing entity will not return the amounts to investors, therefore, before starting any operation it is important to check the rating and reputation of the company and public administration;
- Liquidity Risk: it may happen that you cannot find a counterparty when selling a security before the agreed date.
If you intend to invest in this foreign stock, first of all it is important to be aware of the following issues: reputation of the issuer (even if it is a public administration), issue and redemption prices, interest rate, dates and rules on settlement, in which type of market the security is listed.
How to invest in Foreign Fixed Income?
The easiest way to invest in fixed income securities abroad is by opening an investment account with banks or brokers that operate in the country and to make the transfer the institution needs to be authorized by the Central Bank.
Another way to trade the papers is buying shares through ETFs (Exchange Traded Funds) – Index Funds. This type of investment fund is traded on the Brazilian Stock Exchange and involves fixed income securities from different countries.
A International Fixed Income ETF accepts any index, as long as it is recognized by the Securities and Exchange Commission and through it you can analyze the securities. For example, check the debt segment or interest rates.
However, to start investing you need to open an account with a participating broker. After that, within the application on your Home Broker, enter the code of the desired International Fixed Income ETF. The main funds to invest in ETF in Argentina is Global X MSCI Argentina ETF (ARGT).
Conclusion
As we have seen, Argentine Fixed Income has some different aspects from Brazil and to obtain good profits you need to analyze the economic market of the foreign country. Well, there was a time when income had a rate above 70% per year, but the rise and fall of remunerative interest are not always stable and fluctuate over time.
In fact, fixed income is the type of investment that provides the investor with the most security and is essential for diversifying a portfolio of assets. However, when it comes to public or private bonds in Argentina, it is important to analyze the reputation of the issuer, even if it is a public entity.
Did you like this content? Also take the opportunity to learn about the BDR'S a very easy way to invest in international assets without complications!
