Diamond News

Argentina’s debut century bond is celebrating its first anniversary with record-high yields as a slump in the peso threatens to push the economy into recession. Still, just another 99 years to go.

The government sold $2.75 billion of 100-year bonds in June of last year, trumpeting[1] that the arrival of President Mauricio Macri’s administration had put the serial defaulter in a new era of financial certainty.

Those claims ring hollow after a tumultuous year. The yield on the bonds reached as high as 9.31 percent on Thursday, up 143 basis points since it was sold at a discount as the peso lost 40 percent of its value, forcing the central bank to boost interest rates and fueling already high inflation. Economic activity posted its largest decline in April since Macri took office in December 2015, even as the International Monetary Fund granted a record $50 billion credit line.

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“The government may celebrate, investors can’t,” said Guido Chamorro, senior investment manager of Pictet Asset Management Limited in London. "From a fundamental perspective, the big drop in GDP earlier this week is a bit of a nail in the coffin. Argentina needs growth.”

Even the lifeline from the IMF[2] is “bittersweet,” Chamorro said. Bondholders are now second in line behind the multi-lateral lender should Argentina default.

“The IMF never takes a haircut, thus reducing recovery values for ‘regular’ bondholders," he said.

Global Backdrop

Economic activity fell 2.7 percent in April from the month before, and dropped on an annual basis for the first time in 14 months, the nation’s statistics agency reported Tuesday. That economic weakness will potentially complicate Macri’s plans to further cut government spending as agreed with the IMF.

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