Argentina’s new dollar bonds have plunged back into distressed territory just two weeks after the nation restructured almost US$65 billion in debt.
The securities fell for the fourth consecutive day Monday to an average 39 cents on the dollar. The US$16.1 billion in bonds maturing 2030 tumbled 3.1 cents to 40.3 cents, the lowest since they began trading on September 8 at about 50 cents.
The bonds have a spread of around 1,300 basis points over US Treasuries, well above the 1,000 points many investors consider to be the threshold for debt to be classified as distressed.
The bonds performance underscores the dire economic situation facing Argentina, which is in a deep recession and recently tightened currency controls to preserve its waning international reserves. Credit Suisse estimates the country’s net reserves at around $6 billion dollars, equivalent to less than two months of imports.
“Argentina’s structural problem is a genuine lack of dollars,” said Joaquín Bagues, head strategist at Portfolio Personal Inversiones in Buenos Aires. “The recent Central Bank regulations are an attempt to solve that problem, but in reality, the regulations only serve to deepen it.”
The measures announced by Central Bank chief Miguel Pesce last week include new taxes on purchases of greenbacks and a demand that companies with more than $1 million in monthly debt payments through March find a way to push back those obligations, causing corporate bonds to tumble.
Argentina’s sovereign notes are underperforming regional peers like Ecuador, which also exchanged its overseas bonds for new debt recently. The spread to US Treasuries on Argentina’s bonds is about 300 basis points wider than Ecuador’s, according to JP Morgan’s EMBIG index.
Argentina’s Merval stock index also fell as much as 3.5 percent Monday, while the blue-chip swap rate, a parallel exchange rate derived from the sales of stocks and bonds locally and abroad, fell to a record 135.9 pesos per dollar.
by Scott Squires, Bloomberg