16 October 2017 Special Report: Argentina - Position tor the upturn the Egyptian pound, for instance - the peso is already overvalued according to our estimation (chart below). Therefore, while in Egypt monetary authorities can afford to keep the pound stable for months, Argentina's central bank needs to strike a balance between anchoring inflation expectations and preventing excessive overvaluation. The ARS moves ahead of fundamentals 21X, 1RC trc 110 120 100 ARS REEK Ovedlincler Va,.rotco lose Wits Moar., Svonwr ARS! Mot& Mer-00 14.03 Mar'06 Mw 4n Scion Oars,* Sent LEBACs vs. ROFEX: Hovering around the recent highs 28 -**-Imp Rolex Yield 3M 5M 7M 9M -.-Lebac yield 27 1M 2M 28 25 1W 24 23 22 Aug-17 Nov-17 Feb-18 San* Dandy Oa* eloontep May-18 Aug-18 Implied yields also seem too low The chart below shows that the 7M point for example offers almost 340bp of pick up from a hold to maturity perspective. This wide spread suggest that tactical hedges for the peso's "step-function" behavior are relatively inexpensive - a result that extends to floaters. Mar-12 Mr -15 Implied yields: Relatively low bar for tactical hedges This tug-of-war has resulted in USD.A.RS following a "step-function" ascent — with jumps followed by stability - thus boding for tactically managing longs (carry based strategies) The choice of instrument in the short-end is also important given wide dispersion in valuations. LEBACs are the cleanest instruments to express monetary policy views, but they are also short and the least accessible. Fixed-rate BOTEs and floating BOCANs and BOPOMs are accessible, but bear in mind that they also differ in liquidity and fixings so that comparing these instruments has obvious limitations. From a macro standpoint, LEBACs price a small likelihood of further tightening and low supply risk — thus favoring floaters, as we discuss in more details shoilly. The chart bellows shows that the term-