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Ugly Duckling

13 March 2019 by jbchevrel

Today was a non-eventful session for EM sovereign CDS, with CDX EM s30 constituents moving between -2bp and +5bp, except Argentina (ARGENT). Indeed, ARGENT 5y CDS widened another c20bp, as $ARS has risen c6% month to date, touching a record low vs $ above 42. This widening is despite the approaching roll, but it is not illogical as ARGENT dec23-jun24 roll is likely to be around flat. This risk premium getting priced in in both markets reflects the uncertainty around tomorrow’s inflation print. The consensus expects +3.6% MOM. A much higher number would put CDS under widening pressure. The strategy of the BCRA to reduce money supply to support FX can be seen as dangerous because it can impact the real economy adversely if it lasts, while we have a key election on the agenda in October. Seen from here, Macri seems likely to be re-elected. The first provincial election of the 2019 electoral process, last weekend, resulted in the victory of the incumbent MPN against the candidate which was backed by Cristina Fernandez de Kirchner. This was arguably not a surprise, as the MPN effectively rules that province since 1983 (and the return of democracy…), but it was a positive first signal.