Related News:
Argentine Peso Bonds Beat Dollar Debt by Most in Year on Record Reserves
Argentine peso bonds are recording their best performance against the country’s dollar securities in a year as rising commodity exports swell foreign reserves to a record and shore up the local currency.
The yield difference between the government’s peso bonds due in 2033 and its 8.28 percent dollar bonds maturing the same year narrowed 79 basis points, or 0.79 percentage point, since the end of May, the biggest two-month drop since the nine weeks ended July 2009, according to data compiled by Bloomberg.
Standard Bank Group Ltd.’s Argentine unit is recommending investors buy the peso bonds after international reserves climbed 3.6 percent to $51 billion since June 30, heading for the biggest monthly increase since November 2007, according to data compiled by Bloomberg. Policy makers bought dollars, helping keep the peso stable, after a record 55 million-ton soybean harvest swelled exports.
“We are seeing a huge increase of external reserves in the country,” said Alberto Bernal, the head of fixed-income research at Bulltick Capital Markets, a Miami-based brokerage focused on Latin America. “More liquidity is equaling more growth, and certainly some of that goes into peso-denominated bonds. Argentina looks increasingly interesting under this environment.”
The yield on Argentina’s 2033 peso bonds, which are adjusted for inflation, has tumbled 271 basis points in the past two months to 11.55 percent, according to data compiled by Bloomberg. The country’s 8.28 percent notes due the same year slid 198 basis points over the period to 10.94 percent.
‘Mostly Benefit’
The peso is little changed this month at 3.9370 per U.S. dollar. One-month implied volatility on peso options fell to 4.24 percent from 4.92 percent a month ago. The measure, which reflects investors’ expectations of future price swings in the peso, is the lowest among the six most-traded Latin American currencies, according to data compiled by Bloomberg.
“The trade that can mostly benefit is being long peso discounts as we observe that demand for the currency has increased as the government is showing it can keep the dollar under control,” Ivan Aftalion, a fixed-income trader at Buenos Aires-based Standard Bank Argentina, wrote in a note earlier this week.
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries narrowed seven basis points to 691 at 5:21 p.m. in New York, according to JPMorgan Chase & Co. The gap is down from 846 on July 1.
Peso Forecasts
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 16 basis points to 790, according to data compiled by CMA DataVision. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The peso fell 0.1 percent today, leaving it down 3.5 percent this year. The peso will weaken to 4.2 per dollar by year-end, according to the median estimate of 13 economists in a Bloomberg survey.
“The big issue is how you approach the peso risk,” said Gorky Urquieta, who oversees $12 billion of emerging-market assets at ING Investment Management in Atlanta. “We debated whether we go into the local bonds. The conclusion is unless we have a constructive or positive view that the peso will be allowed to appreciate, we don’t really see an incentive to be involved right now.”
Economic Growth
Economy Minister Amado Boudou said July 15 that economic growth will be “at least” 6 percent this year, up from an earlier estimate of 5 percent. Argentina’s economic activity gauge, a proxy for gross domestic product, jumped 12.4 percent in May from a year earlier, the government said July 16. The increase topped the median 9.1 percent estimate in a Bloomberg survey of economists and is the biggest since March 2004.
“If you are positive about the global economy, positive about commodities, you should buy peso bonds,” Bulltick’s Bernal said. “If the world economy continues to perform well and monetary policy remains expansive, peso bonds will very easily outperform dollar bonds.”
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Boris Korby in New York at Bkorby1@bloomberg.net
Rate These Stories
Rate this Page