Corporate bonds yield 12% in dollars

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Argentine government bonds and those issued by companies denominated in dollars yield four-fold higher than US Treasury instruments with similar duration. With late Fed cuts, North American rates fell on average 3 to 3.5 per cent, while debt issued by Argentine government and private sector did not adapt, still between 10 and 12 per cent annual in dollars.

Argentine country-risk rise to more than 500 basis points (5 per cent annual) partially marks increase of spread between US Treasury bond yield and government bonds. However, this measurement only includes long-term bonds (between 20 and 30 years of duration). When comparison is made in instruments falling due in 5 and 10 years, such difference measured through country-risk grows as much as 900 basis points (9 per cent annual).

This phenomenon arose because investors from the entire world sought shelter in US bonds, triggering price rise and consequent rate fall. However, at the same time, they dismantled positions in emerging assets. Therefore, upon bond value decline, rates rose.

Options

These are some available options in Argentine market for investors seeking greater profits in dollars:

Government bonds: BODEN 2012, paying interest every six months and paying capital annually, yields almost 9 per cent despite its short duration (2.09 years). For longer terms, rates also increase significantly. BONAR 2017, for example, shows 11.80 per cent. In the case of US bonds, yield hardly reaches to 3.50 per cent.

Negotiable obligations: debt instruments issued by companies show strong disparity in their yields. Antonio Cejuela, Research Chief of Puente Hnos, explained that "companies not refinancing their debt in 2001-2002 crisis have yields which come close to what Brazilian firms pay and they are not even far from US yields. Most having to face restructuring have much higher rates." Telefónica de Argentina bonds falling due in 2011 yield 6.47 per cent annual in dollars, while Quilmes pays only 6.21 per cent for an instrument falling due in March 2012. However, there are negotiable obligations from companies and banks that have greater yields and offer significant profits in dollars, largely exceeding amount obtained in US low-risk assets. A bond from Banco Macro falling due in 2017 pays 10.78 per cent annual, but one from Galicia by 2010 settles at 11.38 per cent in dollars. An instrument from Telecom by 2011 pays nearly 11 per cent and other public services firms offer even greater yields. This is the case of TNG, which bond falling due in 2012 offers more than 13 per cent. The riskiest corporations are punished with rates already climbing at least two steps with respect to these levels. The problem with corporate bonds is their poor liquidity, forcing to buy high amounts ($50 billions in several cases) so as not to have excessive punishment in acquisition price. Moreover, it's hard to get rid of these bonds in secondary market, since buyers do not abound.

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