Argentine Bonds Head to Worst Two-Week Decline Since May: Argentina Credit
Argentina's Economy Minister Amado Boudou
Diego Levy/Bloomberg
Argentina's Economy Minister Amado Boudou said that the government has no fiscal need to sell the debt and would only do so to “set a lower benchmark rate” for the country.
Argentina's Economy Minister Amado Boudou said that the government has no fiscal need to sell the debt and would only do so to “set a lower benchmark rate” for the country. Photographer: Diego Levy/Bloomberg
Argentine bonds completed their biggest two-week slump in three months as a slowing global economy and growing clash between the government and the country’s largest newspaper erode demand for the securities.
The average yield that investors demand to hold Argentine dollar bonds instead of U.S. Treasuries climbed 60 basis points, or 0.6 percentage point, this week to 754, according to JPMorgan Chase & Co. The gap has widened 83 basis points since Aug. 13, the biggest two-week surge since May, while the average spread on emerging-market debt over Treasuries rose 5.
The South American country’s bonds are underperforming after President Cristina Fernandez de Kirchner 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. The bond decline, which snapped a six-week rally, the longest in four months, has also been sparked by concern that a faltering global expansion will erode demand for the country’s wheat, corn and soybean exports.
“The selloff is partly related to fears of a double dip, fears of slower economic growth globally,” Jim Craige, who helps manage $12 billion of emerging-market debt at Stone Harbor Investment Partners, said in a telephone interview in New York. The Argentine government’s actions “definitely have contributed” to the decline, he said.
Debt Restructuring
The surge in yields may lead Fernandez to push back plans to sell the country’s first bonds in international markets since a 2001 default on $95 billion of debt, according to Craige.
Economy Minister Amado Boudou said yesterday in Buenos Aires that the government has no fiscal need to sell the debt and would only do so to “set a lower benchmark rate” for the country. Boudou, who in June oversaw the restructuring of $12.9 billion of debt left over from the 2001 default, said as recently as Aug. 4 that the government was looking to sell bonds overseas at yields under 10 percent.
The average yield on Argentine dollar bonds climbed to 10.63 percent today from 9.94 percent on Aug. 13, according to JPMorgan.
“They’ll try to wait for a better moment when market spreads aren’t so high,” said Alejandro Urbina, a Chicago-based emerging-market debt portfolio manager at Silva Capital Management LLC.
Economic Concern
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries widened to 754 basis points today, according to JPMorgan’s EMBI+ index, from 670 on Aug. 13. JPMorgan advised investors to sell holdings of the dollar Argentinean bonds, citing concern that “domestic political conflicts are escalating” and global growth is slowing, after benchmark yields fell to their lowest levels since November 2007 this month.
Concern the global recovery is faltering has increased after data from the U.S. Labor Department showed companies created 51,000 jobs on average from May through July, down from 200,000 in the prior two months, and as the Federal Reserve Bank of Kansas City said manufacturing slowed in August in the region.
A court ruled yesterday that Spain’s method of auditing sales tax was illegal, raising concern about the country’s fiscal stability.
Argentine bonds lost 6.7 percent since Aug. 13, paring their gain this year to 9.7 percent, according to JPMorgan’s EMBI+ index.
The yield on the 2015 bonds slid 22 basis points to 11.10 percent at 6:30 p.m. New York time today from 11.31 percent yesterday, according to data compiled by Bloomberg.
Default Risk
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps jumped 24 basis points to 942 today, the highest since July 7, 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 gained 0.07 cent to 9.55 cents today, according to data compiled by Bloomberg.
Argentina’s peso was unchanged at 3.9445 per dollar today.
Fernandez, 57, 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.
Favorable Coverage
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 on Aug. 25 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.
“The government seems very willing to lock horns here with the Clarin group, and it brings back very poor memories of what you could look at as freedom of expression,” Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal, said by telephone from New York. “It’s not an angle that investors view positively.”
To contact the reporter on this story: Ben Bain in New York at bbain2@bloomberg.net Tal Barak Harif in New York at tbarak@bloomberg.net
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