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Argentine Bonds Rally After IMF Bolsters $57 Billion Line

Published 28/09/2018, 12:32 am
© Reuters.  Argentine Bonds Rally After IMF Bolsters $57 Billion Line
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(Bloomberg) -- Argentina’s dollar bonds gained after the International Monetary Fund boosted the size and upfront disbursements of a record credit line which insures that the nation’s financing needs will be covered through next year’s presidential election.

The yield on the government’s 100-year bond dropped 8 basis points to 9.01 percent. The currency, which will begin trading within a band of 34 to 44 pesos per dollar, opened with low liquidity and dropped 2.5 percent to 39.5 per dollar at 11:23 a.m. in Buenos Aires.

The expanded IMF agreement comes on the heels of turbulent times for Argentina which has seen the peso tumble 51 percent this year as rising U.S. interest rates and investor concerns over the consolidation of public finances prompted investors to dump the country’s assets. President Mauricio Macri, who has met numerous times with IMF Managing Director Christine Lagarde to discuss the aid, is up for re-election next year and is hoping to get a shot at another term despite an economy headed for recession and inflation spiking north of 30 percent.

Read more: Argentina to Get More Cash Faster as IMF Ramps Up Record Bailout

The revised deal raises the total credit line to $57.1 billion over three years, from the $50 billion announced in June with the Washington-based multilateral lender vowing to deliver more of that cash up front. Argentina has already received $15 billion and will have access to another $35 billion through the end of 2019.

The boost in the deal size and the earlier disbursements will also mean that Argentina won’t need to tap foreign debt markets to meet its financing needs until 2020, Economy Minister Nicolas Dujovne said Wednesday. That also means that any debt rollovers in 2018 and 2019 will be prefinancing 2020, alleviating some of the key market concerns.

“We believe this is a material step toward relieving market qualms over debt repayment capacity in the short to medium term,” Santander (MC:SAN) Rio analysts led by Rodrigo Park wrote in a note.

The extra yield investors demand to own Argentine debt over U.S. Treasuries fell 11 basis points to 6 percentage points at 11:23 a.m in Buenos Aires, paring earlier gains. That may be due to lingering analyst doubts on how effectively the central bank’s peso trading band system will work.

"We doubt the effectiveness of the FX-band -- it is a risky choice for a country with low reserves", RBC Capital Markets strategist Tania Escobedo Jacob wrote in a note, who characterized the new regime as “potentially unstable.”

(Updates with analyst comments, peso open.)

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