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Argentina Returning to Local Bond Market After Five Years

Argentina is completing its first local bond sale in five years as part of its efforts to return to global credit markets.

The government is offering 4.4 billion pesos ($542 million) of three-year bonds today with yields tied to the benchmark Badlar rate plus 2 percentage points, or a total of about 26 percent. The Treasury issued 5.5 billion pesos of the 2017 notes in March, its first sale in local markets since 2009.

By tapping the local market, President Cristina Fernandez de Kirchner’s government is reducing its dependence on state agencies and the central bank to finance its deficit, while helping the monetary authority drain liquidity from the economy. Argentina is mending relations with international creditors, compensating Repsol SA for the takeover of YPF SA and paying the Paris Club, as it seeks to regain access to international financing.

“Since the default, investors were always more willing to lend to the central bank, but now the market is assigning the Treasury a similar risk,” said Aldo Pignanelli, a former central bank president who now runs research firm Saver in Buenos Aires. “It’s another step toward normalization.”

Argentina is still trying to move beyond a record $95 billion default in 2001 that locked it out of credit markets. The government is appealing lower court rulings in U.S. courts that ordered Fernandez to pay holdout creditors including billionaire Paul Singer in full for defaulted securities.

Yield Spread

The notes Argentina sold in September 2009 yielded Badlar plus 300 basis points, or 3 percentage points. Badlar, the benchmark rate private banks pay for 30-day deposits of 1 million pesos, was 12.2 percent at the time. The deposit rate was 23.81 percent on June 4, according to the latest data available from the central bank.

The notes being sold today yield less than local bonds due 2016 sold by state-controlled oil producer YPF yesterday, which pay 320 basis points over Badlar. YPF’s dollar notes yield less than Argentine government securities in the bond market.

The extra yield investors demand to own Argentine bonds over U.S. Treasuries narrowed 0.23 percentage point to 7.72 percentage points at 1:50 p.m. New York time, according to JPMorgan Chase & Co.’s EMBI Global indexes.

With annual inflation estimated at 39 percent in April, investors who buy the notes are betting the government will be successful in curbing consumer price increases, according to Mariano Tavelli, the president of brokerage Tavelli & Cia., who said he might buy the bonds.

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

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Rita Nazareth, Daniel Cancel

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