The government expects that banks will swap between 40% and 45% of their bond holdings in the AR$7 billion debt swap that Economy Minister Sergio Massa announced yesterday, official sources told the Herald.

According to sources close to the matter, potential liquidity issues could likely stop banks from swapping most or all of their holdings. The government calculates that half of the swap’s bonds are held by the public sector, and that the other half is in private hands.

Eligible securities for the swap were those due in March, April, May and June.

The debt swap will consist of two bond baskets — one with three BONCER inflation-adjusted bonds that mature in April 2024 (30% of the basket), October 2024 (40%) and February 2025 (30%). The other is made up of two BONCER inflation-adjusted bonds that mature in October 2024 (40%) and February 2025 (30%), plus a TDF24 dual bond (30%) that matures in February 2025.

Dual bonds pay their creditor whichever is higher between the inflation rate and the peso depreciation against the US dollar.

The bonds will have a put option from the Central Bank, which could be exercised at any point during the life of the bonds by exchanging them at market price. A puttable bond means its owner has the right to demand early repayment of the principal.

Opposition coalition Juntos por el Cambio economists said on Sunday that the put option could “activate a new jump in inflation.”

However, official sources denied this today and further rejected the idea of a bank run. The government thinks that banks are protecting themselves from rare financial needs and unfortunate announcements by the opposition, sources close to the matter told the Herald. They also believe current high rates are associated more with political than economic risk.

However, the government also thinks the opposition would not fulfill their implied reprofiling threats, but that their statements are merely part of the political game.

“A reprofiling is not convenient for anyone,” said the sources, who added that with the new swap, the debt will be less dollarized than before.

The government is also expected to hold meetings with insurance companies and investment funds to further “normalize the maturity curve”.

This Thursday, the government will receive offers for the swap from 10:00 a.m. to 3:30 p.m. Offers will be allocated on Tuesday, March 14.