Bond Traders Lured to Obscure Argentina Debt Reap Yields of 32%

  • Buenos Aires province bonds tied to inter-bank deposit rate
  • Central bank has cut rates on local debt amid growth slump

A growing number of foreign investors are turning to a little-known corner of Argentina’s bond market as the central bank chops interest rates that were once as high as 38 percent.

The notes were sold by the province of Buenos Aires in February and yield six percentage points more than the country’s inter-bank deposit rate of 25.6 percent, according to Torino Capital. Brokerage Balanz Capital estimates the province issued as much as 5 billion pesos ($330 million) of the securities to compensate companies that contracted with the province for services including construction and transportation. And because the bonds aren’t listed anywhere, brokers must directly contact the suppliers who were issued the debt.

Overseas investors have scoured the bond market looking for ways to profit from renewed optimism in Argentina since President Mauricio Macri was elected last year. After snapping up dollar-denominated debt, they piled into local-currency notes earlier this year only to see the government limit their ability to buy the securities in May. And with the central bank slashing rates on its 35-day notes to help shore up an economy headed for a recession, the Buenos Aires bonds are now higher-yielding.

The bonds are “a hidden gem,” said Jorge Piedrahita, chief executive officer at New York-based brokerage Torino. He said the firm has traded as much as $150 million of the notes. “Very few people know where to find it."

Walter Stoeppelwerth, chief investment officer at Balanz in Buenos Aires, which is also an asset manager, says he’s been recommending the debt since it was issued, and said that as much as 60 percent of his clients who have bought the bonds are foreigners. In a note to clients in July, Balanz said the bond will yield 36 percent if investors hold it to maturity.

It’s a “weirder-type” investment, Stoeppelwerth said. “I think the easy money has been made.”

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