MercoPress. South Atlantic News Agency

Argentine central bank contains run on the Peso, and major dumping of bonds

The peso's relatively small losses followed a day of sharp gains on Monday as new central bank Governor Luis Caputo hiked banks' reserve requirements

Argentine bonds touched their lowest levels of market-friendly President Mauricio Macri's term on Tuesday, but rebounded in a volatile trading session. Meanwhile the country risk (a measure of the difference between its bond yields and those issued by other countries) rose as much as 27 points to a 33-month peak.

 A broad sell-off in emerging market assets has contributed to the run on the peso that prompted Argentina to turn to the International Monetary Fund for a US$ 50 billion financing deal. The IMF board is expected to formally approve the deal on Wednesday.

”It's all conspiring against Argentina right now, but at the same time we see elements of stability, (and) things potentially beginning to turn around,” Urquieta said.

The peso fell 0.4% to close at 27.80 per U.S. dollar on Tuesday, far from the record-low of 28.50 touched last week. The peso's relatively small losses followed a day of sharp gains on Monday as new central bank Governor Luis Caputo hiked banks' reserve requirements and sold US$ 175 million in reserves in a post-market auction to stabilize the currency after losses of nearly 10 percent this month.

The bank did not sell any reserves in a similar auction held on Tuesday. Apparently banks were offering to buy reserves at an exchange rate of fewer pesos per dollar than the rate at which the central bank was willing to sell.

Stocks rose on Tuesday, with the Merval stock index closing up more than 5%, rebounding slightly after suffering an 8.5% loss, its worst session since late 2014 on Monday.

The central bank hiked its interest rate on Lebac notes to 47% from 40% on Tuesday, and sold 308 billion pesos (US$ 11 billion) of the securities out of some 514 billion that expired.