Argentine President Cristina Fernandez de Kirchner’s growing confrontation with the country’s largest newspaper is exacerbating the biggest tumble in its dollar bonds in two months and prompting JPMorgan Chase & Co. to recommend investors cut holdings.
The yield on the South American country’s benchmark 7 percent securities due in 2015 increased 74 basis points, or 0.74 percentage point, from Aug. 23 through yesterday, the biggest two-day jump since June 7, according to data compiled by Bloomberg. Emerging-market bond yields climbed an average of 18 basis points during the same period, according to JPMorgan indexes.
The New York bank advised investors to sell holdings of the securities, citing concern that “domestic political conflicts are escalating” and global growth is slowing, after benchmark yields fell to their lowest since November 2007 this month. Fernandez, 57, asked a court this week to review the 1976 purchase of a newsprint producer by Grupo Clarin SA, a move opposition leaders say is an attempt to silence critics in the media.
“It’s the type of news that starts to unnerve the market, particularly against this global backdrop and after prices have rallied a lot,” said Alberto Ramos, an economist with Goldman Sachs Group Inc. in New York.
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries widened 10 basis points at 10:26 a.m. in New York, the most in emerging markets, to 760, according to JPMorgan’s EMBI+ index. The spread, up from a three-month low of 653 on Aug. 9, also swelled on concern slowing global growth will curb demand for the country’s commodity exports.
“Following a sharp outperformance, Argentine asset prices now confront a global and domestic environment that is becoming less supportive of immediate spread compression,” Vladimir Werning, a JPMorgan analyst, wrote in a report yesterday. The bank cut Argentine debt to “market weight” from “overweight.” Werning declined to comment further when contacted by telephone.
The government may push back plans to sell bonds in international markets for the first time since its 2001 default as it “focuses on domestic political conflicts” and yields exceed the government’s target, according to Werning’s report.
Economy Minister Amado Boudou postponed plans to sell as much as $1 billion worth of bonds due in 2017 as part of Argentina’s restructuring of $12.9 billion in defaulted debt in June, saying the country doesn’t need the money and would wait for benchmark yields to fall below 10 percent.
Alfredo Scoccimarro, Fernandez’s spokesman, didn’t respond to calls seeking a comment.
The yield on the 2015 bonds climbed 26 basis points to 11.18 today.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps jumped 47 basis points to 891 yesterday, 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 debt agreements.
Warrants linked to growth in South America’s second-biggest economy rose 0.04 cent today to 9.56 cents, according to data compiled by Bloomberg.
Argentina’s peso slid 0.1 percent to 3.9459 per dollar.
Investors should buy the peso instead of Argentine bonds, which are more likely to slump as slackening global growth reduces demand for higher-yielding assets, according to Eduardo Suarez, an emerging-markets strategist at Royal Bank of Canada in Toronto.
The drop in Argentine bonds this week is drawing more attention to the country’s political tensions, according to Henry Stipp, who helps manage $98 billion of assets, including Argentine bonds, at Threadneedle Asset Management in London.
“People start to talk more about political noise when the market turns,” said Stipp, who holds Argentine bonds.
Fernandez said Aug. 24 the sale of paper maker Papel Prensa SA to Clarin, La Razon and La Nacion was illegal because the owner, Grupo Graiver, was under pressure by the country’s military dictatorship to agree to the transaction. Buenos Aires- based Clarin now holds a 49 percent stake in Papel Prensa after buying La Razon’s share.
Clarin and La Nacion, in a joint statement, said that in court testimony made after the country returned to democracy in 1983, the Graiver family said it had sold Papel Prensa and other assets to settle large amounts of debt.
Isidoro Graiver, a member of the family that sold Papel Prensa, said in a statement published in both newspapers yesterday that the transaction was voluntary.
Opposition lawmakers, including former Buenos Aires Governor Felipe Sola and Elisa Carrio, said Fernandez’s administration is trying to pressure the media for coverage favorable to the government.
“This kind of flare up reminds people what the issues are and that’s why spreads are still significantly distressed despite the fact that they have a rallied a lot recently,” Goldman Sachs’s Ramos said.