Argentina the worst of bond market

Bonds' weakness shows how late events affect Argentina. Inflation data manipulation, fear for the effect current power crisis might have on economic activity and start of pre-electoral period have lead investors to get the jitters. Yesterday, the most emblematic and traded bond of the country, peso-denominated Discount, lost almost 1.40 per cent and it has already accumulated 7 per cent during June. Meanwhile, country risk touched the year's maximum: 312 points. It's true that all markers are weak, particularly emerging ones. But we can no longer say that Argentine papers (bonds and GDP coupon) are severely lashed just by mere chance.

Argentine bonds fell sharply yesterday, being once again the worst among emerging countries. Investors sensitive to inflation manipulation, to energetic crisis effect and to closeness of presidential elections have come together, triggering drops of 1.7 per cent in peso-denominated papers and of 1.8 per cent in GDP coupons.

Peso-denominated Discount slid to the lowest level of the year, by closing at ARG$140.25 (1.37 per cent down) and it has accumulated a 7-per cent decrease so far June. At the beginning of the year, this paper went as far as to touch ARG$155, with investors willing to buy it whenever it came closer to the ARG$142/143 limit. But that was not the case yesterday and firm sale orders continued.

Medium term

Also papers which have been withstanding quite well plunged, like BOGAR 2018, which ended up losing 1.37 per cent. We are talking about a medium-term paper, which had only moved marginally in view of investors' selling attitude. The same happened yesterday with a similar bond, PRE9.

Dollar-denominated bonds were not the exception. The new collapse caused country risk to rise to the highest level of the year. Now, the gap between yield of US Treasury bonds and Argentine bonds has climbed by almost 3 per cent to 312 basis points (3.12 per cent annual). At the best moment of 2007 (before crisis of INDEC), it had fallen to 185 points.

"There are several factors working against domestic market. But most importantly, we must get used to the idea that the electoral period is approaching," the analyst from Arpenta, Julio Bruni, stated, who did not rule out the possibility that "Discount drop may continue till ARG$138."

GDP coupon did not manage to escape from this situation either. Doubts about economy development in view of energetic crisis kept on affecting these papers, which pay according to economy growth. The most affected one was that issued in Argentine pesos, by dipping 1.84 per cent.

All the same, yesterday was another negative day for all global bourses, which are waiting for Federal Reserve's meeting (starting today and ending tomorrow). Although it's taken for granted that the Fed will keep short-term rates without variation (i.e. at 5.25 per cent annual), everybody is eagerly waiting for what the entity may say about growth development and inflationary pressures.

While waiting this meeting, bourses continued with a falling trend, also affected by oil price drop (it closed below $68, sweeping along sector companies). London fell 0.44 per cent and Dow Jones index lost 0.11 per cent. Meanwhile, in Latin America, Mexico Stock Exchange was the one suffering the most, with a 1.76-per cent decline; Bovespa plummeted 0.35 per cent and Merval index (Buenos Aires) plunged 0.33 per cent.