Local bonds dropped by the most in about eight weeks on Monday, as investors sought more clarity on economic policy under Alberto Fernández and his running-mate Cristina Fernández de Kirchner after Frente de Todos swept to a first-round victory in Argentina's presidential vote.
Bonds due in 2046 fell to 40.4 cents on the dollar from 42.4 cents on Friday, the biggest decline since September 3 and leading losses among emerging-market peers.
The extra yield investors demand to hold the bonds jumped 76 basis points to 22.47 percent, while the peso’s unofficial rate slipped to almost 82 per dollar from 80 on Friday. Strict new post-vote currency controls that limit savers to purchasing just US$200 per month are stifling the foreign-exchange market.
At a press conference this morning, Central Bank Governor Guido Sandleris said the move was intended to "preserve reserves."
"The objective is to preserve the reserves during this transition period, until the new government defines its economic policy and uncertainty is cleared," said the official.
The Merval index of the Buenos Aires Stock Exchange had lost 2.96 percent by midday Monday, after opening up by 6.21 percent. Stocks of financial entities and energy companies led the drop, with Edenor down 6.55 percent and the Macro Bank down 4.38 percent.
In the exchange market, the dollar traded at 63.46 pesos to sell, a strengthening of 2.38 percent after the election. JP Morgan's 'country risk' indicator rose five percent to 2,268 points.
Local stock, bond and currency markets have tumbled since the August PASTO primary vote showed Fernández was likely to become the nation’s next leader. Investors are now watching for the final composition of Congress and how that may impact key legislation, including a debt restructuring. They’ll also eye any details of the Peronist leader's economic plan.
“Those are the key things to watch,” said James Barrineau, the New York-based head of emerging-market debt at Schroders, who holds Argentine bonds under the US$565.5 billion he helps manage. “The split congress, on the other hand, was we think a positive outcome for markets and indicates that the Peronists will not have a free hand on key economic policy changes going forward.”
In a Sunday evening speech, Fernández called on all Argentines to rebuild the country. Alongside him, Fernández de Kirchner asked Macri to take any measures needed to address Argentina’s financial issues. The comments didn’t explain who will make up the new economic team, or address bondholders or the International Monetary Fund directly.
Macri and Fernández met on Monday morning at the Casa Rosada.
Argentine assets plunged after Fernández upset Macri in an August primary vote as fear of a default sunk in. As of Friday, credit-default swaps showed traders pricing in a 96 percent chance that Argentina suspends debt payments in the next five years. The peso, which lost more than 20 percent of its value after the primary, has since been buoyed by foreign reserves and capital controls that staunched an outflow.