The biggest decline in Argentine borrowing costs in a year isn’t enough to persuade the government to return to the international bond market in the next 12 months, Finance Secretary Hernan Lorenzino said.
The extra yield investors demand to own Argentine dollar bonds instead of U.S. Treasuries narrowed 23 basis points since Oct. 17, a fifth consecutive monthly drop, according to JPMorgan Chase & Co. The stretch of declines is the longest since the period ending October 2009.
While emerging-market governments have raised $79.2 billion selling bonds abroad this year, the most since 2005, Argentina has refrained from tapping overseas markets as the fastest economic growth in five years boosts tax revenue and pushes foreign reserves to a record. President Cristina Fernandez de Kirchner is taking $6.6 billion of reserves this year and plans to use another $7.5 billion next year to make debt payments.
“Our message to the market is, our financing needs for next year can be entirely covered by internal financing sources,” Lorenzino said during an interview in the Economy Ministry in Buenos Aires yesterday. “We are going to be opportunistic in the sense that we will take advantage of good market conditions, and if costs aren’t in line with what we think is just, we will look to our own financing sources, of which there are many.”
Argentine bond yields have tumbled 266 basis points, or 2.66 percentage points, since June, when Fernandez completed a $12.2 billion debt restructuring stemming from its 2001 default. Economy Minister Amado Boudou has said the settlement allows Argentina to sell bonds overseas for the first time since it halted payments on $95 billion of obligations nine years ago.
Fernandez, who postponed plans to sell up to $1 billion of 2017 bonds as part of the restructuring in June, said Sept. 24 she wasn’t interested in selling debt abroad at an 8 percent yield. The government’s 8.75 percent bonds yielded 7.56 percent on Nov. 5, the lowest since they were issued as compensation for past-due interest to creditors who took part in the swap, according to data compiled by Bloomberg.
“Rates for Argentina’s sovereign debt have come down dramatically in the last several months,” Bret Rosen, a Latin America debt strategist at Standard Chartered Bank in New York, said in a telephone interview. “Their view, which is a little bit unorthodox, is that we’re going to use central bank reserves to finance ourselves partially in 2010, 2011, and that, at least in their view point, removes the urgency with which they would need to issue new global bonds.”
Argentina’s reserves rose to $52 billion this month.
‘Take For Granted’
Renewed concern of a deepening debt crisis in Ireland, Greece and Portugal has driven up borrowing for emerging-market countries, including Argentina, over the past two weeks. The yield on Argentina’s bonds due in 2017 rose to a three-week high of 8.52 percent on Nov. 16.
“The recent volatility that we’ve experienced is such a reminder that you have to access those markets while you can,” Siobhan Morden, head of Latin America strategy at RBS Securities Inc. in Stamford, Connecticut, said in a telephone interview. “If they had come sooner, they could have gone at a yield of 7 1/2, now we’re back up to 8 1/2. You cannot take for granted, especially being a high-beta credit, that you’ll be able to come to international credit markets at these prices.”
Lorenzino, who served as Argentina’s financial representative in Washington before becoming Finance Secretary in 2008, said Argentina is looking to resolve negotiations with the Paris Club group over $6.7 billion of defaulted debt before April to help boost investment in South America’s second-biggest economy.
An accord with the Paris Club, an informal association of creditors that includes Germany, Japan and the U.S, would remove an “obstacle” to investment in Argentina by companies in energy and infrastructure, Lorenzino, 38, said.
“I’m optimistic that there is goodwill on both sides,” he said.
Argentine bonds rose today, pushing yields relative to Treasuries down 36 basis points to 520 at 8:15 a.m. New York time, according to JPMorgan.
Five-year credit-default swaps tied to Argentine debt fell 1 basis point yesterday to 709, according to CMA. A basis point equals $1,000 annually on a contract protecting $10 million of debt. 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.
The peso climbed 0.1 percent today to 3.9721 per dollar.
Warrants linked to economic growth fell 0.06 cent today to 12.9 cents, according to data compiled by Bloomberg.
Argentina’s economy will grow about 9 percent this year amid a record 55-million metric ton soybean harvest and surging automobile sales to neighboring Brazil, Lorenzino said. That compares with expansions of 7.3 percent in Brazil, 8 percent in Peru and 5 percent in Mexico. Argentina had a budget surplus equal to 0.2 percent of gross domestic product in the 12 months through September, according to Morgan Stanley.
Carola Sandy, an economist at Credit Suisse Group AG in New York, estimates Argentina’s borrowing requirements will rise to $14.4 billion in 2011 from $11.8 billion this year.
“The objective, once financing costs reach a level that we think Argentina should pay, is to have more balance between public and private financing,” Lorenzino said. “But as long as the conditions to access to private financing aren’t in line with our expectations about the cost we should pay, we will continue to use internal sources of financing.”