Argentina’s resoundingly successful return to international capital markets this week underlines not only the size of investor appetite for the country’s unique proposition — former basket case gripped by reforming zeal, under finance ministry led by former Wall Street insiders — but the extraordinary speed at which that investor appetite has grown.
Just last month, a survey of 20 fixed income fund managers by FT Confidential Research, a unit of the Financial Times, found plenty of interest in the deal but only if, for example, the 10-year bond were to be offered with a yield of between 8 per cent and 9 per cent. In the event, the 10-year bond was issued with a yield of just 7.5 per cent.
That is well into the zone classified as “poor value” by three quarters of FTCR’s respondents.
Only five of the 20 managers polled considered a 7.5 per cent yield for Argentina’s 10-year sovereign “good value”, with the remainder uninspired by anything less than 8 per cent.
But Argentina’s novelty value played marvellously in the new administration’s favour, at a time when other emerging markets such as neighbouring Brazil are mired in recession and scandal.
“So many investors have been underweight Argentina,” says Sanjay Joshi, head of fixed income at London & Capital, “[and] significant demand will be created in the market purely by them moving to weight.”
However Argentina is not off the naughty step just yet. The last-minute introduction of a shorter dated three-year bond yielding 6.25 per cent points to lingering scepticism over the long-term outlook for Argentina.
FTCR found Argentina’s history as a serial debt defaulter, it has reneged on payments eight times since independence, still influenced the willingness of investors to hold longer-dated paper.
The introduction of a three-year bond tranche suggests that even the more timid investors are confident that for the remainder of President Mauricio Macri’s term, Argentina will be a safe place to invest.
But it also suggests some investors may have got caught up in the enthusiasm of the moment. Back in March, just half of FTCR’s sample agreed it was “unlikely” that Argentina would default on its sovereign debt obligations during the next five years. The rest had yet to be convinced.
Lucinda Elliott covers Latin America at FT Confidential Research.
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