By Ben Bain and Camila Russo
Nov. 30 (Bloomberg) -- The biggest tumble in Argentine bonds in more than three months is causing the country to lag behind emerging-market debt on concern Europe?s financial crisis will spread beyond Ireland.
Dollar-denominated bonds in South America?s second-biggest economy are down 4 percent this month, compared with a 3.4 percent decline for Mexico and a 3 percent drop for Brazil, according to JPMorgan Chase & Co. EMBI+ indexes. Argentine debt fell 2.6 percent yesterday, the biggest one-day decline since Aug. 25 and the most in Latin America after Venezuela. Developing-market government bonds declined 0.7 percent.
Sovereign securities in Argentina are headed for the biggest monthly decline since May as Ireland became the second country to tap assistance by receiving an 85 billion euro aid package. Before yesterday, Argentine bonds withstood a tumble in emerging-market debt better than Latin American peers this month as the government?s move to improve ties with the International Monetary Fund buoyed investor confidence.
?It?s the sovereign debt concerns in Europe coupled with the fact that people are being protective of whatever gains they may have had year-to-date,? Alejandro Urbina, an emerging- market debt manager at Silva Capital Management in Chicago, said in a phone interview.
Before yesterday, Argentina?s dollar-denominated bonds fell 1.4 percent in November, while debt from the region declined 2.9 percent, according to JPMorgan. Brazilian bonds slid 2.6 percent this month and Mexico?s tumbled 3.1 percent.
Contagion Issue
Yesterday?s decline for Argentine debt was sharper than the nation?s peers in the region. Mexican government bonds fell 0.35 percent and Brazilian debt dropped 0.43 percent.
Standard & Poor?s rates Argentine government debt B, five steps below investment grade, and the same as Bolivia, Belize, Honduras and the Dominican Republic. In June, Argentina restructured $12.2 billion in defaulted debt.
?When you have the sovereign concerns in Europe and the contagion concern obviously you are going to sell these lesser- rated credits, the ones with more embedded volatility,? Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal in New York, said in a phone interview. ?It?s all a consequence of risk aversion.?
Credit Default Swaps
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries rose 34 basis points to 555 yesterday, according to JPMorgan.
Warrants linked to economic growth fell 0.31 cent to 13.19 cents yesterday, according to data compiled by Bloomberg.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps increased 44 basis points to 703, according to data compiled by CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The peso fell 0.1 percent to 3.9813 per dollar.
Argentine debt had benefitted this month from President Cristina Fernandez de Kirchner?s decision to ask the International Monetary Fund last week to help revamp the national consumer price index and start talks with the Paris Club group of creditor nations.
Fernandez requested assistance from the Washington-based IMF on the inflation index as some economists contend that the country?s consumer price data is inaccurate. The government said inflation rose 11.1 percent in October on annual basis, while Buenos Aires-based research company Ecolatina estimates consumer prices rose 26 percent in that period. IMF staff members will travel to Argentina next month to start working on a new index.
Change in Direction?
?That shows that there has finally been a change in the right direction in reclaiming the good statistics on inflation,? Claudia Calich, who helps manage $1.5 billion in emerging-market debt at Invesco Advisers Inc. in New York, said in a phone interview from Montevideo, Uruguay. ?That?s quite a positive driver for the market.?
Argentina has refused an Article IV review of its economic policies that the IMF requires for all members and Nestor Kirchner, Fernandez?s late husband and predecessor, has said the organization helped lead the country into its record $95 billion debt default in 2001.
?We have been of the idea that Argentina wanted no part of the IMF and this has proven not to be true,? Alvarez said.
Argentina will likely outperform its peers over the next several months once the risk aversion over European debt concerns subsides, said Urbina, whose firm has $800 million under advisory and management, said.
?If you have cash, if you have some conviction on this, then these are opportunities for buying because my impression is this trend for improvement in policy will continue in Argentina,? Urbina said.
--With assistance from Drew Benson in Buenos Aires. Editors: Alan Mirabella,
To contact the reporters on this story: Ben Bain in New York at bbain2@bloomberg.net; Camila Russo in New York at crusso15@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
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