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Bond Vigilantes

24 April 2019 by jbchevrel

Argentina (ARGENT) came under pressure today again, with cash wider ('bear flatter') by c60bp/c220bp, 5y CDS wider by c165bp. Month-to-date that leg brings the move to +c350bp. $21s are +220 vs +50 for $ 23s, exacerbating $ cash curve inversion. The CDS curve also flattened (read: inverted more) by -43bp between the 1y and the 5y point. The FX market suffered too (-2.9% vs $) despite being helped by the daily $ sales of Treasury and firm sales of the agro. As not much seems to have changed on fundamentals, liquidity is still very poor and understandably real money actors are not keen to keep Argy risk ahead of October election. This looks like the most binary EM election this year, with pro-market incumbent Macri facing former President & populist Kirchner. Fundamentals are not weaker than it was already today. The fact that CPI came higher than expected last week (4.7% m/m for March) does not bode well, as under painful high-inflation-high-rates conditions, one can be tempted to think that the Argentinian consumer will be more encline to vote for Kirchner. For reference, central government debt has reached 86% GDP including 76% in foreign currency. This year is important as ARGENT will have to pay $81B (principal 64 + interest 17). Then $40B in 2020 (26+14). Gross financing needs expected $50-100B for 2020-23. Outflows have been $16B (17) $19B (18) $2B (19). Since 2016, FDI and financial inflows have amounted to USD8.1bn and USD26.6bn. On the data front, we get trade balance @ 20.00 LDN time. This move was rather local, the rest of credit being rather firm (CDX IG -0.5), helped by strong US IG cash with 10y USTs richer 4bp and SPX breaking 2,940 yesterday. This Argy move triggered a selloff in CDX EM (+9.8bp on 5y s31 today – LDN close), although other constituents are little moved (-2/+3).