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Unity vs Strength

20 May 2019 by jbchevrel

Argentine Republic (ARGENT) CDS was the main mover in the CDX EM over the past few weeks, as the risk premium linked to October’s vote came higher. Former president and populist Cristina Fernández de Kirchner (CFK) surprised by announcing that she asked Fernández to run for president, her being running for VP. Local paper La Nación reported that CFK offered Fernández to run for president on May 15, he then accepted on May 16. Out of its context, it could have looked positive for ARGENT risk, as her probability to win the vote is probably to be blamed for most of the risk premium built in over the past few weeks. However, at the open, ARGENT CDS came wider by +30bp and $ cash opened lower. Because CFK’s move is clearly a strategy to broaden her political space, offering an 'argument' to some Peronists that are not in her camp to join, which is rightly seen as boosting chances to get a populist-governed Argentina (again). Fernández had been chief of cabinet during both Nestor Kirchner's and CFK’s presidencies. Although he had then become critic of CFK, they now share the objective of beating Macri. 30bp isn’t much, when it is about ARGENT CDS, and the 5y even reverted to flat on this session (based on London close). Peronists governors Urtubey & Schiaretti have said it does not change things, and they do not back AF-CFK. Massa was more supportive, but that was expected. Net net, no big change. It is arguable that although the market is unchanged, the distribution of outcomes is probably different, given that it is possible to win in the 1st round with <50% votes (by getting either 45%+ of the votes, or 40%+ and have a 10% gap over 2nd). Other CDX EM constituents are also little changed -2.5 (Turkey) / +2 (Colombia) despite decent spot FX moves (TRY/$ +0.5% COP/$ -1.7%).