After exceed 1,800 points, the country risk already registers a rise of 110 points or 6.4% in the month, and with respect to the beginning of the year the jump reaches 450 basis points or 33 percent.
This is one of the variables that arouses the most alerts in both the private and public sectors, because impacts on a country’s financing capacities.
It’s about a index prepared by JP Morgan bank and that works as a benchmark when measuring the total return of international government bonds issued by emerging countries.
Using the EMBI or Emerging Bonds Market Index, such the official name of the indicator, global traders and investors have a reference from which require a certain level of return on sovereign bonds that are issued in foreign currency, usually in dollars or euros.
Part of measuring the yield gap of US Treasury bonds – considered a safe financial asset due to the payment capacity of its issuer – with respect to similar bonds from emerging countries. In the case of Argentina, with 1,822 basis points, implies a differential of more than 18% with respect to the Treasury to 10 years, with a rate of 1,645 per year.
It means that If today the Argentine government tried to place a ten-year bond should validate a 19.9% annual rate in dollars to find some demand in the market.
Argentina’s country risk is today the highest since September 10, 2020, when the country restructured its debt with private creditors. And it is similar to the 1,824 points of January 2, 2020, when Alberto Fernández just assumed the presidency, even before the exchange.
The country risk at 1,800 points is similar to what Argentina had in January 2020, before the debt swap with private creditors
Do youWhat does it obey the recent jump in country risk? Basically, by collapse of the prices of Global bonds -in dollars with foreign law- issued with the exchange and which are those that are operated abroad. In fixed income, the internal rate of return of the bond evolves in the opposite direction to prices, therefore, at lower prices, the rate is higher and, therefore, the country risk.
The experts of Personal Investments Portfolio identify four reasons behind falling bonds sovereigns: “the noises in the monetary, the gap at unsustainable levels (this week it exceeded 115%) and a BCRA scarce foreign exchange“, To which is added” a highly volatile emerging climate“.
Due to the high rates, Argentina cannot take on more debt abroad and only has the IMF as a lender of last resort
1) Noise in money. The continuity of the fiscal deficit anticipates more issuance of pesos. In October, with the “Platita plan” in progress and in full electoral campaign, the National Public Sector registered in October a primary deficit of $ 209,169 million and a financial deficit of $ 277,094 million. This led to the Central Bank will make transfers to the Treasury for $ 335,000 million in October -more than 10% of the Monetary Base-. By the end of the year, this fragile status of public accounts is expected to continue.
2) Gap in unsustainable levels. Such a high exchange rate gap above 100% between the official exchange rate and the dollars implicit in financial operations -including bond prices- has little precedent in the economic history of Argentina. AND never stayed this high for so long as in the present – already in October 2020 it had exceeded that threshold. In the opinion of the operators – and based on the experience of previous crises – this gap is “resolved” by hook or by crook, through a sharp devaluation, today repressed by an iron control of capitals.
At 1,800 units, Argentina’s country risk is 1,400 basis points above the average for emerging economies
3) BCRA scarce of currencies. The Central’s gross reserves exceed USD 42 billion, but when discounting loans, the currency swap with China, private deposits and the IMF’s Special Drawing Rights, they remain at a net balance of about $ 5 billion, which is reduced to about $ 1 billion excluding gold. The shortage of liquid dollars in reserves against bulky maturities Debt pays the idea of serious difficulties in honoring debt payments in the near future.
4) Volatile emerging climate. The devaluation of the Turkish lira (-17% in November) and the negative evolution in the last six months of Brazilian stocks and the Brazilian real (-18% and -10%, respectively) place Argentine bonds within an environment of emerging financial weakness, in the consideration of investment funds, what is called “risk aversion”.
Portfolio Personal mentioned that “these last wheels were joined by a very volatile emerging climate with the EMBI exceeding 380 points. Argentina within this group is a separate case with a country risk that already exceeds 1,800 points (maximum post-restructuring), leaving a spread with respect to LATAM above 1,400 points”.
The Global bonds fell for the seventh consecutive session on Wednesday and recorded new historical lows since its launch on the market more than 14 months ago. They accumulate drops of up to 4.6% this week alone and analysts project a monthly loss in a range of 4.4 and 5.9 percent.
Argentine bonds do not raise their heads: they extended the losing streak for the seventh consecutive round
“In this frame, Globals average price broke the $ 32 floor and even now exceeds the minimum levels of March 10 (USD 31.98). Thus, it set a new post-restructuring low of USD 31.95 ″, indicated Portfolio Personal. “Meanwhile, the weighted average rate is at maximum levels since the titles debuted in September last year and is just one step away from exceed the 20% threshold”The report added.
The analysts concluded that “the performance of the Argentine debt in the post-electoral rounds made it clear that it is not enough with the sole expectation that the ‘multi-year plan’ that will be sent to Congress in December brings us closer to a agreement with the IMF. So far, the silence of the Vice President (Cristina Kirchner) and the more moderate statements within her environment should be a positive point ”.