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Caribbean Trader
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These are not happy times for Argentine bondholders. Those who bought into the country’s 100-year bond are nursing mounting paper losses as the sell-off that began at the start of the year shows little sign of abating. The $2.75bn issue — sold to much fanfare last June — is trading at just 89.34 cents on the dollar on Monday, compared to the near 105 cents it commanded just five months ago. A $4.25bn 10-year bond issued in January is currently trading at around 92 cents on the dollar, representing an 8 per cent loss in just four months. Appetite for Argentine assets has been waning in recent months as concerns grow over the country’s painfully high level of inflation and large trade and fiscal deficits. The peso has shed more than a quarter of its value over the past year and hit a record low of 21.94 per dollar. In response the central bank spent some $4.3bn last week trying to prop up the currency. When that didn’t work, it resorted to an aggressive 300 basis point interest rate hike on Friday. A severe drought is also complicating President Mauricio Macri’s efforts to revive Latin America’s third-largest economy. Agricultural exports are one of Argentina’s main sources of hard currency, but the worst drought in decades is expected to hit this year’s soyabean and corn harvests. The country’s famed cattle industry is also predicted to rack up millions in losses. Adding to Argentina’s woes is the return of US dollar strength. After a choppy start to 2018, the greenback is on track for its best month since Trump’s election as the markets dial up their expectations of further interest rate rises amid steady economic growth and inflationary pressure. A stronger buck tends to make riskier EM assets less attractive, because investors can get higher returns on dollar-denominated assets. For Argentina, cooling demand for its bonds can potentially become problematic because it needs to continue issuing hard currency debt to finance its fiscal deficits. The country has already raised $17.6bn so far this year via hard and local currency bonds as this chart from BNP Paribas illustrates.
Speriamo di non piangere anche sui decennali
