Argentina’s Credit Default Swaps Soar With Dollar Bond Losses

The cost to protect against an Argentine default is surging the most since August as reserves plunge and the peso sinks to a record on the black market.

Argentina’s five-year credit default swaps have jumped 4.58 percentage points this month to 2,096 basis points on Jan. 20, the highest since Oct. 10 and the biggest increase in the world, according to prices compiled by CMA. A tumble in Argentine bonds have pushed average yields to 12.3 percent, trailing only Venezuela among emerging markets tracked by JPMorgan Chase & Co.’s EMBIG indexes.

This month, the nation’s international reserves used to pay debt plunged below $30 billion, while the peso in the illegal currency market fell to a record 11.95 per dollar after inflation quickened to 28.4 percent in December, the fastest in at least two years. While the nation is working to restructure defaulted debt with the Paris Club of creditors, a resolution that could help bring money into the country may be months away.

“The decline in reserves and the pressure on the parallel FX market made investors more worried about the sustainability of the government’s FX strategy,” Daniel Chodos, a strategist at Credit Suisse Group AG, said in an e-mailed response to questions. “The lack of a comprehensive strategy to deal with the decline in FX reserves reinforced investors’ concerns.”

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