By Drew Benson - Jul 30, 2010 11:00 AM GMT+0800
Argentine bonds posted the biggest advance in emerging markets this month after President Cristina Fernandez de Kirchner’s $12.9 billion restructuring sparked a credit-rating upgrade and revived demand for the nation’s debt.
The South American government’s dollar notes have returned 13.9 percent in July, the most among 46 developing countries tracked by JPMorgan Chase & Co.’s EMBI Global Diversified Index. Argentine debt rose 2.5 percent in June and is up 11.8 percent this year, the index shows.
Investors snapped up bonds that pay an average interest over U.S. Treasuries of 691 basis points, or 6.91 percentage points, the highest among 15 countries in JPMorgan’s EMBI+ index after Venezuela and Ecuador. Last month’s swap of defaulted securities held out of a 2005 settlement prompted Fitch Ratings to boost the country’s credit rating to B from default. The government says the restructuring will allow it to sell bonds overseas for the first time since its 2001 default.
“If you’re looking for high yields, Argentina has a more positive outlook with less uncertainty, at least over the next 12 to 24 months,” said Roberto Sanchez-Dahl, who oversees $1 billion for Federated Investment Management Co. in Pittsburgh and has an “overweight” position on Argentine debt.
Argentina is leading gains in emerging markets this month as developing nation bonds record their biggest gain since September. Emerging-market bonds returned 4 percent during the month, the best performance since September’s 5.2 percent rally, according to JPMorgan’s EMBI+ indexes.
The extra yield investors demand to own Argentine government bonds instead of U.S. Treasuries shrank 130 basis points, or 1.30 percentage points, in July, according to the EMBI+ index.
10 Percent
Yields on the government’s 2017 bonds, issued to compensate creditors for past-due interest in the debt swap, dropped to 10 percent yesterday. Economy Minister Amado Boudou said in June the government aimed to sell as much as $1 billion of the securities on international markets once yields fell below 10 percent. Argentina shelved plans to issue the bonds after concern European governments may struggle to finance budget deficits pushed the yield as high as 12.97 percent on June 9.
Sanchez-Dahl said he’d consider buying the new 2017 notes.
Argentina’s peso declined 0.1 percent yesterday to 3.937 per dollar.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 16 basis points to 790 basis points yesterday, leaving it down 181 basis points in July, according to data compiled by CMA DataVision. 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 its debt agreements.
Argentine warrants linked to economic growth climbed 0.12 cent to 9.74 cents.
‘Correction’
Yields on Argentina’s benchmark dollar bonds due in 2015 rose one basis point, or 0.01 percentage point, to 10.71 percent, according to data compiled by Bloomberg.
Argentine bonds are poised to slump as the global economic recovery slows, leading investors to shun higher-yielding assets, according to Eduardo Suarez, an emerging-markets strategist at Royal Bank of Canada in Toronto.
“We see a correction for Argentina driven by a global slowdown in growth that will cause a drop in stocks and lessen risk appetite by the tail end of this quarter,” Suarez said.
Economy Minister Amado Boudou said July 15 that economic growth will be “at least” 6 percent this year, up from an earlier estimate of 5 percent.
Argentina’s economic activity gauge, a proxy for gross domestic product, jumped 12.4 percent in May from a year earlier, the government said July 16. The increase topped the median 9.1 percent estimate in a Bloomberg survey of economists and is the biggest since March 2004.
A record soybean harvest has helped the central bank boost reserves to an all-time high of $51 billion this week and pushed tax revenue 39 percent higher in June from a year earlier to 37.3 billion pesos. Argentina’s budget surplus before interest payments was 2.7 billion pesos in June. The government has run a so-called primary surplus every month since December 2008.
“The fact that the government hasn’t been able to tap international markets in so long has left the balance sheets in good shape,” RBC’s Suarez said.
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
From Bloomberg published on Jul 30, 2010 11:00 AM GMT+0800