Argentine Bonds Rally as Government Negotiates World Bank Loan

Argentine bonds rallied, reducing the extra yield investors demand to hold the securities instead of U.S. Treasuries to the lowest level in almost a year, as the government negotiates a $3 billion loan from the World Bank.

The so-called yield spread fell 24 basis points, or 0.24 percentage point, to 895 basis points at 2:36 p.m. in Buenos Aires, the lowest since Oct. 25, 2012, according to JPMorgan Chase & Co.’s EMBI Global Diversified index. The spread climbed to as high as 1,337 basis points this year. Yields on restructured dollar bonds due in 2017 dropped 41 basis points to 13.73 percent today.

Economy Minister Hernan Lorenzino said yesterday the country is in talks with the World Bank to secure financing through 2016. Bonds are also rising after the Buenos Aires-based newspaper Ambito said the country is resolving its claims with the lender’s arbitration tribunal and as President Cristina Fernandez de Kirchner’s hospitalization spurred speculation there will be a change in government, said Siobhan Morden, the head of Latin American strategy at Jefferies Group LLC in New York.

“It’s a combination of all these announcements with expectations of a regime change,” Morden said in a telephone interview. “You get a sense that they recognize they have a structural financing gap and low reserves and they need to find alternative ways of funding.”

The World Bank loan would help finance development projects at a time when the government’s fiscal deficit is widening the most since the 2001 financial crisis and reserves are at a six-year low of $34.6 billion.

Arbitration Claims

Argentina will pay about $500 million to five companies that won arbitration claims in the World Bank’s tribunal using local law dollar bonds due in 2015 and 2017, Ambito reported yesterday, without saying where it obtained the information.

Bonds are extending a rally spurred by an Oct. 7 announcement that Fernandez needed surgery to drain a hematoma in her skull. Fernandez is recovering, eating solids and has begun to walk in her room, presidential spokesman Alfredo Scoccimarro said today in Buenos Aires. Her doctors have yet to say when she may be released or exactly how long she will have to rest.

This week the spread over Treasuries has tumbled 110 basis points, dropping below that of Venezuela, Belarus and Ukraine.

To contact the reporter on this story: Camila Russo in Buenos Aires at crusso15@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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