Saturday, November 27, 2021

ECONOMY | 12-08-2019 08:20

Argentine eurobonds tumble after Macri thrashed in shock PASO vote

The peso could lose 25 percent of its value and bonds may slump about 20 percent on the results, according to BTG Pactual Argentina.

Argentina’s international bonds tumbled in London trading after a opposition candidate Alberto Fernández routed President Mauricio Macri in a shock primary election result.

The nation’s euro-denominated notes due in 2028 collapsed, sending the yield up almost three percentage points to 13.46 percent, the highest since the notes were sold, according to data compiled by Bloomberg. Opposition candidate Fernandez and his running mate, former president Cristina Fernandez de Kirchner, won by a much wider-than-expected margin over Macri, spooking investors who were already trimming exposure to Argentine assets as the October 27 presidential election nears.

Amherst Pierpont Securities warned of “panic” when local markets open. Others weighed the chances that the Central Bank will intervene to support the currency, which is already the worst-performer in emerging markets this year versus the dollar with a 17 pecent loss.

“For markets, this is very negative,” said Carolina Gialdi, a senior fixed-income strategist at BTG in Buenos Aires. “The market will likely price this as it is a done deal that Alberto Fernández won.”

The peso could lose 25 percent of its value and bonds may slump about 20 percent on the results, according to BTG Pactual Argentina. That would be a sharp turnaround from Friday, when bonds and locally traded shares gained amid optimism about Macri’s chances.

Traders fear the primaries are a signal the country may look to return to policies such as currency and capital controls, steering away from Macri’s more market-friendly positions.


In a press conference Sunday evening, Macri said he had “a bad election,” and that his coalition would work to change the trend. The president declined to say if he’ll announce special measures to calm markets or boost the country’s economy ahead of the first round vote.

Argentina’s 100-year dollar bonds fell, propelling the yield 80 basis points higher to 10.37 percent at 11.26am in London.

The view from outside

Here’s what money managers and analysts are saying:

Siobhan Morden, head of fixed income strategy for Latin America at Amherst Pierpont Securities:

  • Markets will likely “panic” Monday, and bond prices could plummet as investors start to discount a high probability of default
  • “The burden is now on Fernández to calm markets or inherit a country that is ungovernable”

Gene Frieda, a strategist at Pacific Investment Management Co. in London:

  • “The market will now need to factor in a substantially higher probability of negative debt dynamics, capital controls and some kind of forced debt reprofiling”
  • “We see little reason for contagion to persist across the rest of EM, but in thin August markets, the risk of overshoots is magnified by thin liquidity”

Julian Rimmer, a trader at Investec Bank Plc in London:

  • Volatility across the EMFX complex has been remarkably subdued of late but a crisis in Argentina could rekindle concerns in other frangible currencies like the Turkish lira and the South African rand, especially in light of seasonally low turnover

Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm:

  • “The effect on other EMs will be noticeable, but given that many EM investors have been cautious about adding exposure to Argentina, the effect should be temporary, lasting less than a month”

More from BTG’s Gialdi:

  • The Central Bank will probably not intervene even if there’s a 30 percent drop in the currency because “it would be a massive waste of international reserves, which only makes things worse” and could put more pressure on the currency

Whitney Baker, founder of New York-based Totem Macro:

  • Baker has been bullish on Argentina since September and said more information is needed before she changes her stance, but that “it’s clearly more negative”
  • Expects the Central Bank to be in the currency market if there’s substantial pressure
  • “A severe market reaction could give the electorate a taste of what they’re in for if they elect the Peronist ticket, and we know they’re very clued into the currency. If there’s an outsized reaction they may think hey, this is actually us going backwards”

James Barrineau, the New York-based head of emerging-market debt at Schroders:

  • Peso is likely to get hurt but central bank has ability to support it; still, people don’t want to see a full week of a weaker peso and the central bank spending dollars to support it
  • “I wouldn’t expect things to go out to 13, 14 or 15 percent yield in short-dated bonds because market was already cautious on election”
  • “I wouldn’t expect the bottom to fall out here, but we’re going to clearly adjust for a higher probability of Fernández winning if these results hold”
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