We have been stressing out for a while that markets have been implying a verybullish scenario for Argentine risk assets.

    The excitement from markets is understandable given the high returns offered bylocal instruments in a context of low rates in the US and supportive inflows toEmerging Markets.

    However, as we have called out the attention yesterday (Latam Strategy; feelinguneasy with US real interest rates), the combination of several different elementsis leading us to believe that, should the present global financial dynamics continue,an adjustment in risk assets is the most plausible scenario in Q3 2017.

    In this context, we believe Argentina is one of the most exposed countries given itshigh level external vulnerability, unconsolidated fiscal situation, and politicalchallenges ahead this year.

    Strategy: Buy protection in USD 22mn Argentina 5y at 326bp against sell protectionin USD 23mn 5y EM CDX at 199bp (spread of 127bp, USD 10k DV01 each). Initialtarget: 177bp. Stop loss: 90bp. Carry is negative 2.5bp/month.

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