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Bond Market: Argentina’s 2014 Default Was Like A Hundred Years Ago

So let’s buy some 100-year-bonds from the formerly uniquely recalcitrant debtor.
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By Leandro Kibisz (Own work) [Public domain or CC BY-SA 3.0], via Wikimedia Commons

By Leandro Kibisz (Own work) [Public domain or CC BY-SA 3.0], via Wikimedia Commons

Argentina has been a member in good standing of the global sovereign bond market for a little less than a year-and-a-half now, having spent the previous 14 as a pariah on account of refusing to pay its bills. But a year-and-a-half is apparently a heck of a long time in the fixed-income business.

“If we had told people we were going to sell a 100-year in Argentina even a year ago, they would have looked at us like, what are we thinking?” she said.

Monday, however, was in another year, and investors hungrily snapped up 100-year bonds from a country that has defaulted six times in the last hundred years. We know. The Financial Times was surprised, too, and had a few questions like, “Why were there buyers?” and “Still sounds a bit risky given Argentina’s history as a defaulter?” The latter of which isn’t actually a question, but a reasonable thing to say all the same. Not to worry, however, says this guy:

But Mr Macri’s government “cured” the latest default in 2016, and times have changed, said Joe Harper, a partner at Explorador Capital Management, an investment fund focused on Latin America. “The policy pendulum in Argentina has shifted to the centre, and the country’s next 100 years will be very different than the last century.”

Yes, one whole year into Argentina’s third century as an independent country and it is perfectly safe to make sweeping predictions about that century and then take investment decisions based upon them. Plus, Argentina doesn’t have to stay on its best behavior for the whole 100 years. Just a dozen will do.

If Argentina fulfils its promises to reduce its deficit, meeting its fiscal targets, there is a good chance that Argentine bond prices will rally significantly over the next couple of years. Given the bond was sold at a yield of almost 8 per cent an investor would recoup their initial investment in around 12 years.

Twelve years, you say? Why, that happens to be one year fewer than the average break between defaults Argentina has managed over the past 66 years.

Argentina’s ‘Century Bond’ Had Global Interest [WSJ]
How did Argentina pull off a 100-year bond sale? [FT]