Worrying collapse of Argentine bonds

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Argentine markets had their black Monday yesterday. Neither is subprime crisis nor intimidating local economy data to blame. Freezing of as much as $17 billions of Global Bonds ordered by New York judge Thomas Griesa triggered strong sale orders at opening. Losses sped up with implementation of Supply Act. Discount in pesos, an emblematic bond of the Kirchner arising from 2005 debt swap, plunged 4.1 per cent in a few hours. Domestic instruments settle at all-time lows. Market got the jitters yesterday, where a wide range of rumours spread. As anything can happen in an uncontrollable government with regard to interventions, controls, pressures or threats, rumours immediately hit quotes. Neither quote retreat seems to have boundaries.

Argentine bonds and coupons had to endure rumours and great fear that May's economic measures may affect economy. Their collapse was so prominent that swap bonds settle nowadays at lower levels than when they debuted back in April 2005 and quoted at ARG$104. Discount bond closed at ARG$102.50 yesterday.

Rumours causing bonds to stumble were:

New economic plan in May with public works, which may threaten fiscal surplus or even reserves of Argentine Central Bank (BCRA, in its Spanish acronym).

Swap of bonds about to fall due for longer ones.

Freezing of Global Bonds by New York court.

Implementation of Supply Act.

Reappearance of farming strike.

Energy crisis due to oil at $117.

More fake indexes of Argentine Statistics and Census Institute (INDEC, in its Spanish acronym).

All these circumstances worked in favour of sellers. But, as no great bondholders remain, because they have been dismantling their investment portfolios since February, trading amount continued at low levels.

In the Electronic Over-the-Counter Market (MAE, in its Spanish acronym), trading added up to ARG$1 billion, but only $500 millions went to sovereign debt bonds; the rest headed for LEBAC and NOBAC (BCRA Bills of Exchange and Securities).

Debt swap bonds were severely lashed. Discount in pesos lost 4.10 per cent and Par in the same currency, 3 per cent. GDP coupon, adjusting by economy growth, plunged 2.50 per cent, though with poor trading.

These instruments denominated in dollars stumbled as much as 1.80 per cent abroad, raising country-risk to 560 points, according to JP Morgan's EMBI.

Argentine bonds showed the worst performance of the region. They are on the fringes of US crisis and involved in more serious local clashes, which are fuelling inflation.

Post-default bonds also had widespread lows. BOGAR lost 1.50 per cent, while the remaining bonds dipped between 0.50 per cent and 1 per cent. BONAR X, one of the last instruments issued in dollars, lowered as much as 2.70 per cent.

Although government ignores bondholders, price of government instruments mirrors lack of confidence in the future of Argentine economy. Policy followed by internal trade secretary Guillermo Moreno achieves goals, though the other way round: food basket prices rise, while debt bonds' plummet. Reason why Argentina has no credit and suffers mounting inflation.

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