By Scott Squires
BUENOS AIRES – Argentina’s new dollar bonds are yielding about 11% in unofficial, over-the-counter trading as the country finalizes a $65 billion debt restructuring and emerges from default for the third time this century.
The bonds are priced at an average 50 cents on the dollar, according to traders, with notes maturing in 2029 worth about 54.5 cents on the dollar and securities due 2041 valued around 45 cents. Trading on the new bonds officially starts on Monday, but will begin in earnest on Tuesday after the Labor Day holiday in the U.S.
The gray market is pricing the new notes similarly to where the old ones were trading after Argentina struck a deal with its creditors last month amid concern over the outlook for Argentina’s moribund economy. That is prompting asset managers to favor bonds maturing in the short term, according to Russ Dallen, managing partner of Venezuela-based Caracas Capital Markets. Argentina’s gross domestic product is expected to contract a record 13.5% this year, according to JP Morgan.
“Between COVID, Argentina, Ecuador, Lebanon and Venezuela, 2020 hasn’t been a great year for emerging market asset managers who are all a little shell-shocked by the carnage,” Dallen said.
“Market demand is for getting your money out soonest, leaving the longer end of the curve decidedly higher.”
Argentina must work to reduce those bond yields in the coming months, as it will take time for the government to return to capital markets, Economy Minister Martin Guzman said in an interview with Bloomberg TV on Friday.
Argentina’s local law dollar notes are also trading on the gray market, with higher yields than their international peers of around 12%. Dollar denominated bonds due in 2030 (known locally as AL30) have an implied price of 49.8 cents on the dollar, using pricing based on Argentina’s blue-chip swap rate.
The gray market prices are only an indicator of how the bonds will actually perform as the trades are not binding. The new bonds, issued as part of its restructuring deal, officially begin trading on the first business day after their September 4 settlement date
Argentina’s new overseas notes are expected to begin officially trading at a spread of more than 10 percentage points above benchmark U.S. Treasury bonds, a level that traders call “distressed.” While that signals a high risk of default, the global economy’s zero-rate environment may drive investors to continue taking chances in Argentina, despite its repeat history of default, according to Dallen.
“With the US 10-year yielding 0.65%, hope springs eternal,” he said. Bloomberg