Twelve months back, the Ministry of Economy announced that after negotiations with external creditors that lasted four months longer than stipulated, the country had reached a debt restructuring agreement under foreign law, which meant “significant debt relief.” At that time, the country risk was above 2,100 units and in the days that followed the news it had managed to drop more than 1,000 points.
But, the news about the handling of the economy in the context of the pandemic, the postponed agreement with the Monetary Fund and doubts about the government’s economic plan quickly erased that improvement: andThe JP Morgan indicator has been around 1,600 points for months and the bonds that were restructured last September presented falls of more than 35% on average.
From the floor of 1,050 points that the country risk had reached in the days after the exchange, the indicator recovered more than 50% in less than a year, to reach 1,597 units in which it closed this Tuesday. Although at the beginning of June, the bonds had tested a slight improvement, for more than 30 days they have not managed to pierce the floor of 1,500 points.
For Pedro Siaba Serrate, from PPI: “The restructuring itself was a success. Argentina managed to convince large resident and non-resident private holders to swap the debt, extend the terms, lower the coupons. But the lack of a consistent plan, rational made it a necessary but not sufficient condition to regain market confidence. ”
The economist added: “The reading is that the country will have lost the liquidity window gained and since 2025 it has larger and more difficult maturities ahead. And that is where the market’s bet is that Argentina will inevitably go to an event of a new default on payments. “
Investor mistrust manifests itself in the steepness of the yield curve. The market does not believe that the country will be able to meet its debt obligations in the coming years and bonds that mature first, such as AL39, have a yield greater than 23%: the risk of default is so high that in a world where the debt of most countries has a negative rate, not even this “premium” is used to that the bonds gain attractive.
Juan José Vazquez, from Cohen SA, explained: “As soon as they entered the scene, the curve for these bonds was flat at around 10%. At that time, the market had the idea that the Government was going to reach an agreement with the Fund in the short term. But the uncertainty due to a lack of agreement led one to think that the government would maintain the deficit to prioritize the elections. “
Since last month the swap bonds have paid a coupon to their holders. But Vazquez says that even this does not work as an incentive for investors’ appetite to recover. “Since last July 9, the bonds began to have a slightly more interesting coupon accrual. Before the investor did not charge at all, now at least there are titles such as AL38 or GL41, but with the economic reactivation in doubt due to the health context, they fail to generate any interest. “
For his part, Ezequiel Zambaglione, Balanz’s chief strategy officer, pointed out that the price of the bonds implies a fear of a default political: “The fear is that in the long run the Government does not want to pay the debt and that it prioritizes an economic program incompatible with the agreement with the IMF. In the long run it may mean not accessing the capital market again and that puts in doubt the sustainability of Debt”.
With the international markets virtually closed for the country, the Government’s commitment continues to be financing in the local capital market. However, a weaker performance of the Treasury during the past month and the poor result of the tender on Tuesday also casts doubt on the success of this strategy.