Argentina debt issue

Don't cry for Argentina...yet

Bonds
Picture of Althea Spinozzi
Althea Spinozzi

Head of Fixed Income Strategy

Argentina has been able to refinance 26bn of the peso-denominated short-term securities known as Lebacs, at 40% for the 26-day issue and at 38% for 154-day ones, although the country is battling a currency crisis. The Argentinian peso has fallen approximately 20% since the end of April as investors realised that the country's economy is weak and vulnerable to external factors such as  US dollar strength and the Trump administration’s unfavourable trade policies. President Mauricio Macri’s gradualist approach to undo the populist policies of his predecessor has not proven effective in halting galloping inflation and a soaring current account deficit, which at the moment amounts to 5% of GDP.

Bonds have suffered outflows in the past few days, partly because investors fled to safer assets, and partly because there is no reason to keep EM investments when interest rates in the US are rising, making US corporates and even Treasuries look interesting. Just to give you an example, the US 2-yr Treasury yield has hit 2.58% which is the highest level we have seen since 2008. Only one year ago the yield on these 2-yr US notes was below 1% and although it is true that Treasuries may fall further, current levels give investors the opportunity to invest in a short maturity Treasury paying very close to the yield of the 10-yr benchmark. 

This implies that the sell-off we are witnessing in Argentina may spill into other countries which in the past few years have also amassed  large amounts of US dollar debt, taking advantage of the plight of yield-starved international investors. 

In the meantime, Argentina is said not to be looking to issue international debt until next year, a move that would reduce the US dollar bond supply that could support sovereign prices in the medium term. At the same time, Macri’s plan to turn to the IMF for a bailout may play a supportive role for Argentinian sovereign debt as if the bailout were to be granted, it would put investors at ease because the country would then have sufficient reserves to meet debt maturities.

Some investors are already stepping forward and filling their pockets with cheaper Argentinian sovereigns even though they are conscious that nobody really knows where they will be tomorrow. The real question at this point is, how much pressure  needs to be applied in order to scare off investors? 

Figure 1: USDARS and Argentina centenary bond price in blue. Source: Bloomberg

Argentina yields

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.