UPDATE 3-Argentina chips away at debt with high-interest Lebac sale

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(Recasts throughout; updates with results of central bank sale, adds analyst comment)

By Walter Bianchi and Cassandra Garrison

BUENOS AIRES, Oct 16 (Reuters) – Argentina’s central bank issued a fresh batch of publicly-traded, short-term notes on Tuesday in an bid to chip away at its year-end repayment obligations, which have contributed to concerns over the country’s ability to service its international debt obligations in 2019.

The central bank said it sold 105.810 billion pesos ($2.939 billion) worth of peso-denominated, short-term notes, known as Lebacs, with an average interest rate of 57.0 percent to offset 230 billion pesos in notes set to expire on the same day.

The central bank issued Lebacs with an average interest rate of 45.0 percent in September. It has said it is issuing the new debt at higher interest rates to pay off investors gradually, ensuring that only financing institutions will hold the short-term notes by year-end.

The Lebacs, which are offered publicly, are set to mature in one to three months, while even shorter-term notes, known as “Leliq,” are issued daily to banks.

The central bank said on Friday its current stock of Lebac debt totals around 340 billion pesos ($18 billion). Only around 12 percent of that debt is held by banks with the rest held by mutual funds, companies and private investors.

The monetary authority issued $3.666 billion worth of seven-day “Leliq” notes at an average interest rate of 72.198 percent, up from 71.997 percent offered in Friday’s auction.

Monday was a market holiday in Argentina.

Ilya Gofshteyn, a foreign exchange and macro strategist for Standard Chartered Bank, attributed the demand for the country’s short-term debt to emerging markets’ improved performance in recent weeks.

“Investors feel it’s a better environment, so they might go out and buy riskier assets because they feel it is a safer bet than it was a month and a half ago,” Gofshteyn said.

Argentina’s peso closed 2.2 percent stronger at 36 pesos per dollar on Tuesday, traders said, boosted by the higher interest rates on the country’s short-term debt.

The central bank is issuing billions of dollars worth of debt as part of its effort to prop up the peso, which has lost about half its value against the greenback so far this year. (Additional reporting by Hugh Bronstein, Jorge Otaola and Gabriel Burin; writing by Scott Squires; editing by Richard Chang and G Crosse)

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