Argentine bonds surged the most in emerging markets after the government said it has received financing proposals from international investment banks as the nation’s reserves stand at a seven-year low.
The extra yield investors demand to hold Argentine debt over U.S. Treasuries narrowed 31 basis points, or 0.31 percentage point, to 796 basis points at 12:10 p.m. in New York, according to JPMorgan Chase & Co.’s EMBI Global Diversified index. That’s the narrowest spread over Treasuries on a closing basis since January.
The Economy Ministry said yesterday that while no debt agreement has been reached with investment banks, there have been different proposals. Argentina, which hasn’t sold debt abroad since a record $95 billion default in 2001, is close to receiving a two-year $1 billion loan from Goldman Sachs Group Inc. at a rate of 6.5 percent, newspaper Pagina/12 reported yesterday. The fresh financing proposals along with other measures to normalize foreign creditor relations are driving the rally, Julian Adams, the chief executive officer of Adelante Asset Management Ltd. in London, said.
The series of measures to resolve foreign creditor relations has “set the market on fire,” Adams, who invests in Argentine government debt, said. “There’s a road map for the government to sort out its debt problems.”
Goldman Sachs spokesman Michael DuVally declined to comment when reached by telephone today in New York.
Since October, Argentina has settled disputes at the World Bank’s arbitration tribunal, overhauled economic data reporting after being censured by the International Monetary Fund, agreed to compensate Repsol SA for the seizure of its 51 percent stake in YPF SA and made a proposal to the Paris Club to settle its outstanding debt.
The last major hurdle to repairing relations with foreign creditors is the nation’s battle with hedge funds trying to cash in defaulted debt. Argentina is appealing a lower court ruling to the U.S. Supreme Court ordering the government to pay holdouts $1.5 billion at the same time restructured debt is serviced.
About 93 percent of investors accepted losses of about 70 percent in debt restructurings in 2005 and 2010.
The market is also more optimistic on a negotiated outcome with holdout creditors suing in U.S. courts, which may involve investment banks mediating, Adelante’s Adams said.
“We can’t know if any discussions with holdouts are occurring, but would the fact that some investment bank takes part in the negotiations which coincides with new issuance or new funds be unimaginable?” Adams said. “Not at all.”
President Cristina Fernandez de Kirchner, whose second term concludes at the end of 2015, changed her economic team in November and oversaw the largest devaluation of the peso in January since 2002 in an attempt to shore up finances. The government will slash subsidies on gas and water by about 20 percent starting tomorrow.
The government posted the largest fiscal deficit and current-account deficit in more than a decade in 2013 while reserves fell more than $12 billion. According to preliminary gross domestic product data, the government won’t make a $3 billion payment to holders of warrants tied to growth this year, freeing up more funds to service its foreign debt.
The central bank will add as much as $1 billion in reserves when state-run energy company YPF sells debt abroad this week, according to Adams.