At default price: Argentine debt bonds already yield 27% and are among the riskiest in the world

President Alberto Fernández poses with IMF Managing Director Kristalina Georgieva in Rome in May 2021
President Alberto Fernández poses with IMF Managing Director Kristalina Georgieva in Rome in May 2021

This Friday the Global bonds registered the tenth consecutive session in decline. In other words, they lost value in each of the operating wheels of this newly released 2022, to accumulate a average drop in the range of 10 to 11 percent.

In their minimum prices since market launch, there are bonds with foreign law, such as Global 35 (GD35) and Global 46 (GD46) that are worth less than USD 29, when they were paid over USD 50 16 months ago.

The bonds issued with the debt swap 16 months ago in dollars fall between 10% and 11% in 2022

The return rates offered by the bonds in dollars of the short section of the curve touched the 27% per year in dollars for issues under Argentine law, and 25% for those under foreign law.

They are extraordinary returns where the underlying default forecast, it is believed that they will not be paid in a timely manner, which makes them attractive only to those with the nerve to take on such a risk.

Scenario of “no agreement” with the Fund?

“Debt hard dollar Argentina does not find a floor due to discrepancies with the IMF, which drive away the few investors who still have some position in national bonds. In addition, there was no reinvestment of the recently paid coupons,” said the consultant. delphos-investment.

He added that “foreign banks that still cover Argentina seem start buying the scenario of a ‘no’ agreement with the IMF, and with it the bad mood seems to grow. We still assign a 65/70% chance to an hourly deal, which otherwise wouldn’t do much more than decompress some of this financial stress and improve reputation a bit.”

In that sense, the risk country from JP Morgan, which measures the rate gap of US Treasury bonds with their emerging peers, continued to rise for Argentina, again close to 1,900 points, a very high mark that had been surpassed at the end of November.

The 8 keys behind investor distrust

1) SLOW NEGOTIATIONS WITH THE IMF. the presidential spokeswoman Gabriela Ceruti He stated on Thursday that meetings are being held permanently with the IMF. “Argentina has already presented its proposal and is waiting, and is in the hands of the Fund Monetary now try to give the answer as quickly as possible”, he emphasized.

And revealed that the chancellor santiago cafiero Look for the United States key endorsement for the deal. The next maturity to be amortized is at the end of March for almost USD 4,000 million, so that date is speculated as a target in accordance with the idea of ​​avoiding the much-feared default.

The possibility of an agreement is still distant or at least that could be glimpsed in a definition of the president Alberto Fernandez, who acknowledged that an understanding with the agency to make the demanding payment schedule of some USD 45,000 million more flexible depends to a greater extent on a political agreement with the Fund and not so much on technical issues.

Country risk levels are ‘default’, despite a giant private debt restructuring in 2020.

2) DEFICIT THAT DOES NOT YIELD. The biggest difference between Argentina and the IMF is in how to reduce the fiscal deficit, since the multilateral organization wants it to be through a notorious adjustment and the government -which opposes to that alternative – seeks to be based on growth with higher collection.

3) INFLATION ON THE RISE. Stock trading remained conditioned by the strong expansion in retail prices, whose December record of 3.8% was the second highest in 2021 and closed the year at a worrying 50.9%, higher than expected by analysts.

“The data confirmed what the market was discounting: the drop in the CPI for November was a transitory phenomenon,” concluded the analysts at Personal Portfolio Investments. According to the BCRA’s REM, analysts projected that the retail inflation for 2022 will be at 54.8%. Inflation of 43.4% is forecast for 2023, and 35% for 2024.

4) A BCRA WITHOUT LIQUID DOLLARS. Another fundamental aspect is the immediate availability of foreign currency to meet debt payments. The net reserves of the Central Bank are almost nil -today basically made up of gold- and the national State does not have access to international credit markets.

Although gross reserves exceed USD 39 billion, a report by GERES (Group of Studies of the Economic and Social Reality) specified that according to the latest balance of the BCRA, updated to January 7, the net reserves were located at USD 3,088 million, while the liquid net -by discounting USD 3,448 million for holding gold- were losses in USD 529 million. Also, there are about USD 169 million left corresponding to the Special Drawing Rights (SDR of the IMF) assets, which will be consumed in payments to the organization at the end of the month.

5) ABSENCE OF ECONOMIC PLAN. It is expected that the Government will convene extraordinary sessions in Congress for the last week of January, it is not clear if an eventual agreement with the Fund will be included in the agenda. One of the main themes that it was planned to be is he Multi-year Economic Plan, but with the passing of the days it was diluted that possibility.

6) PESSIMISM ABROAD. A recent investment bank report Morgan Stanley pointed out that the arrangement between Argentina and the IMF could be postponed until the second quarter of the year, with a catastrophic scenario if it spreads beyond, where the stock market would collapse worse than in the 2019 primaries, up to 70% in dollars.

7) DOUBTS ABOUT ECONOMIC GROWTH. Financial activity is mobilized in the midst of two other major conditioning factors for the local economy: a historical heat wave with power outages in much of the country and a galloping third wave of coronavirus. Although the GDP recovered close to 10% in 2021, for this year and 2023 the expectations moderate at a rate close to 2% annual. Without an agreement with debt creditors and the irruption of imponderable events -such as a possible drought- would force GDP projections to be reduced even more.

8) DROUGHT IN THE COUNTRYSIDE. The estimate of losses of about USD 5 billion in the next harvest goes back to the “beginning of the end” of the government of Mauricio Macri in 2018 when he lost USD 8 billion due to the drought and before the closing of the financing channels in the market he ended up knocking on the doors of the IMF.

A report from the Bag of Cereals from Rosario indicated that the 2021/22 drought will cost agricultural producers USD 2,930 million, since summer water stress caused drop the soybean and corn harvest projection by 9 and 8 million tons, respectively.

This decrease in production will result in less freight, less financial and brokerage services, less consumption. In total, the impact on the Argentine economy is estimated at USD 4.8 billion, or 1% of its GDP potential.


The drought returns, the ghost that led Macri to the IMF
Inflation appears to be even higher in 2022 and would help the Government to make the adjustment with the IMF
Interest rate: the ranking that shows why Argentina and Switzerland are diametrically opposed countries
The dollar rose and Argentine bonds in dollars sank to their lowest prices since the debt swap
ETFs debut on the Buenos Aires Stock Exchange: how you can invest in Wall Street indices from Argentina

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Helen Hernandez is our best writer. Helen writes about social news and celebrity gossip. She loves watching movies since childhood. Email: Phone : +1 281-333-2229

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