Country UpdateMarch 01, 2021
- Costa Rica
- Czech Republic
- Dominican Republic
- El Salvador
- Ivory Coast
- Saudi Arabia
- South Africa
- South Korea
- Sri Lanka
- Trinidad And Tobago
Market Pricesargentina sovereign
|ARGBOC 2 03/15/24||724.00||724.50||50.92||0||+0||2024-03-15|
|ARGENT 0 1/2 07/09/29||38.80||39.30||12.44||1993||0||2029-07-09|
|ARGENT 0 1/8 07/09/30 €||35.55||36.05||11.51||2079||+4||2030-07-09|
|ARGENT 0 1/8 07/09/35 €||31.60||32.10||13.79||1563||+1||2035-07-09|
|ARGENT 0 1/8 01/09/38 €||34.40||34.90||13.31||1801||+8||2038-01-09|
|ARGENT 0 1/8 07/09/41 €||32.30||32.80||12.15||1639||-6||2041-07-09|
|ARGENT 0 1/8 07/09/46 €||31.60||32.10||11.35||1852||+2||2046-07-09|
|ARGENT 1 07/09/29$||39.75||40.75||12.69||1868||+6||2029-07-09|
|ARGENT 0 1/8 07/09/30||36.38||37.38||12.16||1926||+11||2030-07-09|
|ARGENT 0.125 07/09/35-||32.00||33.00||14.69||1496||+1||2035-07-09|
|ARGENT FLOAT 12/15/35||-0.25||0.25||0.00||0||+0||2035-12-15|
|ARGENT FLOAT 12/15/35 $GDP-||0.05||0.95||0.00||0||+0||2035-12-15|
|ARGENT 0.125 01/09/38-||37.20||37.70||13.79||1657||-2||2038-01-09|
|ARGENT 1.18 12/31/38||816.50||817.00||8.11||0||+7||2038-12-31|
|ARGENT 0 1/8 07/09/41||34.80||34.80||12.38||1490||+3||2041-07-09|
|ARGENT 3.31 12/31/45||1193.95||1194.45||6.18||788||+23||2045-12-31|
|ARGENT 0 1/8 07/09/46||32.15||32.65||12.50||1792||-6||2046-07-09|
Market Mapargentina sovereign
The mix of extremely low bond cash prices and tangible catalysts provide a good risk/reward setting with attractive optionality.
As bonds continue to slide, our thesis is reinforced, turning us even more bullish.
We stress test our thesis, by assuming that the next government – to be elected in late 2023 – restructures its commercial debt.
We analyse bond’s break-even recovery values. This is the recovery value that will give investors flat returns after facing a hypothetical restructuring.
Central Bank (BCRA) debt issuances are becoming an important source of monetary expansion.
In 2021, the BCRA will have to issue 41% of January’s monetary base (USD 11,981 mn) to pay interest on its monetary liabilities.
In January, net international reserves hit a new low, reaching just USD 3,667 mn, 69% lower than when Fernández started his mandate.
EMFI Securities expects inflation to climb to 48.9% this year (from 36% in 2020), at the expense of regulated prices, a higher spread between the official and parallel FX rate, repressed salaries and social security adjustments.
BUY: Despite poor signals fr...
We revised our Argentina Local Currency December strategy outlook, where we analyzed inflation linked and dollar linked bonds.
ARS Inflation Linkers continue to be the only attractive securities to invest within the local currency universe.
Inflation heated up in December, with a 4% m-o-m print (core CPI 4.9%) and we expect a 4.5% m-o-m print for January
Given Central Bank signalling, we like the belly and the long-end, and especially like TC25 and DICP, which offer 8.5% and 7.29% real yields.
The market is pricing a strong likelihood that Argentina will renegotiate the bonds again, possibly as soon as in 2024.
We computed the hypothetical returns if there is a renegotiation before the July 2024 payment date, and find ARGENT 41 as the most attractive option to play the scenario.
For a recovery value of 40%, an investor would earn an 8.6% return per year. The position would still be profitable for recovery values as low as 28.9%.
We also show bond sensibilities to yield curve movements, and find that ARGENT 30 maximizes exposure to yield compression over a 1-year holding period.
Overall, we favor ARGENT 41...
A creditor committee formed by Argentine sub-sovereign bondholders filed a claim in the United States District Court for the Southern District of New York seeking a judgment against Entre Rios
ENTRIO 25 continues to trade in the 55c-60c range, regardless of the aforementioned suit or the lack of guidance given by the province on debt restructuring.
We think that, considering its fiscal position, Entre Rios can offer a higher step-up coupon structure and the resulting recovery values of its new 2031 bond.
We remain positive that despite negotiations stalling, ENTRIO 25 trading at 58 is one of the best opportuni...
ARGENT and ECUA bonds have faced a rough patch, but only ARGENT seems to have touched rock bottom.
Caution is the path to follow with both curves, but ECUA has a lot more ground to lose in case of setbacks.
ECUA prices reflect uncertainty over the upcoming presidential elections, but a victory from Correísmo in the first round could push them further down.
ARGENT bonds face a myriad of challenges, but a low cash price and yields exceeding 15% more than compensate the risks
Negotiations with the IMF, the economic recovery, and Legislative elections will mark the course of Argentina’s performance in 2021.
Legislative Elections will be polarized between Frente de Todos and Juntos por el Cambio, with Frente de Todos holding a small lead.
Argentina will face gross financing needs of USD 56,884 mn (or 14.3% of GDP) this year; a big chunk of which comes from the service of local law debt.
HOLD: Expectations of an upcoming agreement with the IMF have deteriorated and sustainability indicators continue to deteriorate. Despite this, Argentina between 33 and 41 cents remains an attractive risk/r...
Emerging markets faced massive capital flight as a result of the COVID-19 crisis.
However, there has been debate as to whether the severe initial shock was primarily the result of an interruption in liquidity flows and not the deterioration of macroeconomic variables.
Growth in emerging economies may have taken a permanent hit but, at the same time, emerging markets could become more attractive to those hunting for yield.
We believe that the deepness of the impact of the pandemic on EMs can be quantified.
With 2021 just around the corner, only Neuquén, Mendoza, and Chubut have come to terms with their creditors.
Santa Fe and Ciudad Autonoma de Buenos Aires (the municipality, not the province) managed to service their debt and scare the ghost of default away thanks to their low leverage and resilient fiscal balance.
We looked at IMF guidelines in order to pinpoint a theoretical sustainable coupon level for the provinces that have not yet completed their restructurings
Entre Rios and Rio Negro should be able to improve their offer, and would manage to close their restructuring closer to an NPV of 85&...
The primary fiscal gap continued widening during October, reaching 5.3% of GDP YTD, which is already the worst result since 2008.
Compared to our forecast, the 2021 budget is quite optimistic, as it underestimates expenditures and overestimates revenues.
EMFI Securities expects the primary deficit to reach 5.6% of GDP in 2021, while the overall fiscal gap will amount to 7.1% of GDP.
The low levels of monetization in early-2020 provided the way for increasing the money supply without a considerable inflationary impact.
BUY: With the expectation of an upcoming agreement with the IMF, Argentina trading between 30 and 4...
We analyze inflation linked bonds (CER Bonds) and the synthetic position constructed by combining dollar linked bonds and local non-delivery USDARS forwards.
The market (seen in the bond market breakeven inflation) is expecting that inflation will accelerate as lockdown measures start to ease and the money printing from Q1 and Q2 start to kick in.
From the linker curve we like the short end and the belly of the curve, as we believe that a more hawkish stance from the central bank can undermine the returns of the longer duration bonds.
We like the synthetic that can be built by buy...
We take a comprehensive look at political risk indicators in a group of Emerging Market countries, trying to identify potential sources of conflict.
We analyze the electoral scenarios in the four Latin American nations that will have electoral processes during the end of 2020 and all of 2021.
We review the scenarios in the parliamentarians of Argentina and El Salvador, we comment on the electoral process that will take place in Venezuela, and we review the perspectives of the presidential elections in Ecuador.
We evaluated the World Bank’s governance indicators for our sample countries in 2019 and share our view of thes...
Inflation picked up in October after prices increased 3.8% MoM (from 2.2% on average until September), reaching an increase of 35.7% in YoY terms.
The increase in interest rates forms part of a set of measures that the government is taking to signal a more orthodox policy path.
We believe that it would be very challenging to pursue this set of measures since the government lacks political cohesion within the Peronist coalition to carry on with these policies.
BUY: We continue to believe that Argentina trading in the mid 30’s presents an attractive risk/reward, and we maintain our BUY for the credit
Scholarly research shows that domestic debt grew as a share of total debt in EMs during the first decade of the century, but defaults on domestic creditors still decreased significantly.
A default to domestic investors usually carries a higher political and economic cost than a default to foreign investors.
Domestic debt is usually concentrated in local financial institutions, such as banks, insurance companies and pension funds.
The primary fiscal deficit has reached record highs of 4.9% of GDP YTD, beating the record set during the first year of Macri’s administration in 2016.
The Central Bank financed the government by 6.8% of GDP, of which by 4.7% are in profit transfers and 2.1% through transitory overdrafts.
Monetary financing will cover 60% of the fiscal deficit in 2021 (-4.5% of GDP), and domestic debt will fill the rest.
The broad money will grow 55% by the end of 2021, which will result in inflation acceleration.
We continue to believe that Argentina trading in the 30 presents an interesting asymmetry, and we maintain our BUY...
Both Argentina and Ecuador have been underperforming after their restructuring, with Argentina suffering significantly more.
At this point, given the significant increase in the spread between both curves, we still think both credits are cheap, but find Argentina more attractive.
In our view negative factors in Argentina such as a problematic official devaluation, inflation, increased strain on skinny reserve buffers are all already discounted in current prices.
On Argentina, we think much of the pessimist expectations on the Fernández administration’s policy-making are already priced in, leaving room f...
The strategy (or the lack of) for Argentina is to clench its teeth and hold until a new deal is struck with the IMF.
The main goal of Argentine authorities is to postpone the repayments of the USD 44 bn loan with the IMF.
The IMF will ask for a relaxation of capital controls and a normalization of the FX market, coupled with rules on monetary financing once the country leaves the worst part of the pandemic behind.
We believe that the Fund will allow for fiscal deficits in 2021 and a gradual convergence to a balanced budget in 2022/2023.
We upgrade Argentina to BUY, and like the New 35’s f...
With the restructuring operations in Argentina and Ecuador having finally settled, we look into the new bonds in search of attractive investment opportunities.
Low coupons in relation to yields result in very low cash prices, which makes both sets of bonds attractive versus other comparable sovereign bonds.
There is a distinct lack of carry, but it is offset by a very strong pull-to-par effect, which means that bond prices can rise very quickly.
In Ecuador, we find a very compelling combination of high potential returns if yields compress and limited downside if they deteriorate, which makes the credit a strong BUY f...
During the 1Q20, the economy fell sharply by 5.4%, from 1.1% YoY in the 4Q19.
The government partially relaxed social distancing measures in mid-June, which caused a slowdown in the decline of the economic activity index to 12% YoY in June (from -26% in April).
However, the levels of economic activity are still below pre-lockdown levels.
The COVID-19 pandemic started as a supply-side shock, but it could quickly evolve into a demand shortfall if high levels of uncertainty remain.
The primary fiscal deficit reached 2.6% of GDP during Jan-May 2020, close to the 3% previously forecasted by the government for the whole year
The Central Bank has provided 4.7% of GDP in financing to the government in the year to July, of which 1.7% corresponds to transitory overdrafts and 3% to utility transfers.
The primary fiscal deficit will soar from 3% of GDP in the first budget to 6.3% if the extension of the 2020 fiscal budget is approved by Parliament.
We initiate our coverage of the Argentine provinces, which as the sovereign, are poised to restructure its debt,
Between 2016 and 2018, Argentine provinces took advantage of the market openness and issued USD 12.3 bn in hard currency bonds.
Understanding the key differences between the provinces will be decisive to know what to expect going forward.
The sovereign is going to set the tone for the following restructurings.
We think that most Provinces do require some degree of debt relief. The exceptions in our view are the City of Buenos Aires and Neuquén.
Argentina's new restructuring proposal represents a meaningul improvement when compared to previous offers in terms of NPV.
The inclusion of minimun participation thresholds is something positive in our view, as it signals the goverment's intent to go through an exchange without holdouts.
So far, from the biggest creditor groups, the Exchange Bond Holders Group and the Ad Hoc Group have rejected the offer, while the Bondholders group has expressed support.
In terms of valuation, the front end of the global curve is the only obstacle we see for a deal going through.
We remain positve on Argentina...
The process of defaulting and restructuring usually involves a sharp spike in yields just before the credit event.
Then yields lose their economic meaning and only prices make sense, as they turn into a summary of market expectations for the recovery values.
This period ends when an exchange takes place and the old bonds are replaced by new bonds with a given exit yield
One year after the agreement, yields fall on average 4.1 pp from 12.6% to 8.5%.
This shows that there is potential to pick up price gains by entering a credit just after restructuring, and waiting for spread compression during the first year.
After months of renegotiating, debt talks between Argentina and its creditors have come to a halt.
Argentina has made important ammendments to its first offer in order to reach a deal with creditors, and bondholders have also revised their pretensions.
If we look at the proposals from a valuation standpoint, it is hard to see this deal falling through.
The real problem in this negotiations is the legal fine print of the proposals, which in this case has numerous angles and is becoming more complex.
One of the key barriers to a deal is the re-designation clause, which Argentina has included in its fi...
Emerging debt continues to be in trouble given current market conditions.
So far debt relief proposals by the G20, IMF and World Bank have only included private creditors on a voluntary basis.
It seems more costly to deal with relief or restructuring of Eurobonds than to advocate for this type of request in bilateral and commercial debt.
Multilateral organizations are also constrained from granting debt relief by its potential impact on their own credit profiles.
Low interest rates and the hunt for yields of the last decade has left broad swaths of EMs overindebted and vulnerable.
The first half of 2020 is not yet over and we already have 3 countries in default.
The recent record of most defaults on Eurobonds on a single year was 4 in 2017, so 2020 is not far from setting new records.
Eurobond restructuring processes are usually among the most complicated due to the variety of holders and the different interests they represent.
Suriname, Zambia, Belize, Sri Lanka and Angola are in the most risk to engross the default-statistic for the year.
We estimate that net international reserves fell 17% compared to April, standing at USD 7,538 mn on May 23.
To put this figure in context, between April and May the BCRA sold USD 1,317 mn (17% of net reserves) in the official FX market.
Given the low levels of net reserves, it is unlikely that the BCRA will continue to be a net buyer of USD in the medium term.
The strategy of offering hedging along the forward curve complements all of the other measures taken by the government to take the pressure off the precious FX reserves.
All the necessary ingredients for a devaluation of the FX rate and an accelerat...
May was one of those months that feels like a year. We had a default in Argentina, a tense election in Suriname, a deadly pandemic still spreading around the world, and yet, it was a good month for emerging market debt
Our EMFI Core Index went up for the first time in 6 months. The biggest winners were Argentina, Angola and Ecuador, while Venezuela, Suriname and Sri Lanka were among the negative outliers that went against the general risk-on mood
The macro and fiscal situations deteriorated further for all countries covered, and we chronicled the dramatic economic crash in our Country Reports
We’ve been preparing fo...
Argentina officially entered into default after failing to service USD 503 mn of interest payments.
After having its first proposal widely rejected by bondholders, the government continues to maintain dialogue with bondholders, who presented counteroffers.
We think actual prices include high probabilities of a deal materializing in the short term.
In our view, going long Argentine bonds at current prices with only a deal in sight does not justify the risk.
An investment thesis with a longer horizon that contemplates a post-restructuring scenario could support selective long positions.
As of May 22, 8 countries have at least one USD-denominated sovereign bond trading below 50 cents on the dollar.
The Covid-19 crisis could lead to a new wave of sovereign defaults from prolonged confinements.
We discuss the worst debt restructuring events so far this century.
Argentina 2005 remains at the forefront of these events if we exclude the exceptional cases of countries at war or leaving them.
The countries with the most compromised solvencies that could generate problems with their debt are Angola and somewhat behind, Sri Lanka, El Salvador, Egypt and Pakistan.
A pandemic year was on the cards, the dramatic magnitude of its effects was not.
The global economy is expected to shrink by 3% in 2020, but leading indicators are pointing to a deeper downturn.
Emerging countries with a history of volatile economic growth will show the worst results.
Some economies may experience a period of above-trend growth during the recovery, although the level of GDP will remain, in most cases, below the pre-virus level.
Pakistan is the weakest among the EMFI Countries, in terms of the spread of the virus. Lebanon, Sri Lanka and Barbados are the strongest, with a controlled increase rate and a persistent lockdown.
The countries that we evaluate with the worst economic performance year-to-date are Angola, Venezuela, Lebanon, Barbados, El Salvador, Ecuador, Sri Lanka, Argentina and Suriname.
Since the end of 2019, the local currency has depreciated -70.5% in Venezuela, -52.4% in Lebanon, -43.5% in Argentina and -40% in Suriname.
El Salvador and Argentina launched the most ambitious fiscal program among our sample, which will cost 6% and 5.6...
The safest rung of EM hard-currency sovereign bonds fell on March but has already retraced all their losses.
Mid-quality EMs plunged over March and have risen somehow since, but haven’t fully recovered.
This segment has seen a 320 bps rise in average yield in 2020, going from an average 6.1% yield to 9.3%.
We believe high-yield bonds in our mid-quality group have significant upside if they avert a credit event.
After a dry March, markets are again open for fresh bonds, but only from relatively high-quality issuers.
Argentina extends deadline for debt restructuring deal until May 22.
Alberto Fernandez and Martin Guzmán have invited bondholders to present counteroffers and suggest ammendments.
An increase in coupons, principal haircut ammendments, and payment in the first 3 years can increase the new bonds net present values substantially.
Buenos Aires Province has missed its last debt service and has also extended its deadline for debt deal until May 26.
We expect to see the province coordinating with the sovereign, and make similar ammendments to its initial offer.
US stocks rose 12.7% in April, while US investment grade bonds rose 4.6% and EM bonds 4.0%.
Our EMFI Core Index fell 0.9% over the month and is 27.1% down YTD.
The best performers of April were Egypt (+4.7%), Sri Lanka (+4.0%) and Turkey (+3.8%).
The worst performers were Suriname (-26.9%), Lebanon (-14.0%) and El Salvador (-11.3%).
The IMF has approved just over USD 16.0 bn for 61 countries.
Of the 16 countries we follow, 6 have already been granted financing for a combined USD 3.5 bn.
Lebanon and Argentina presented restructuring proposals asking for large debt relief but not offering much adjustment.<...
The fiscal stimulus package has been fully financed with monetary issuance in March.
We may see an inflation acceleration in the second half of 2020 once the lockdown is lifted.
The spread between the FX rates soared reaching 2011-2015 highs.
The higher spread of FX rates raises expectations of a new devaluation.
We identified 23 countries that have at least one bond yielding above 10%, a threshold usually associated with sovereign distress.
Among the most distressed credits, first-time defaulter Lebanon is trading between 16.3 and 18.3 cents on the dollar, on account of slow progress on a reform plan.
Argentina’s debt goes in a range of 23.2 to 34.6 cents on the dollar, days after the Fernández administration’s aggressive mid-April proposal to bondholders was publicly rejected by 3 creditor groups.
Ecuador trades between 28.8 and 33.6, after negotiating a coupon standstill that will give the country until Augus...
Argentina, land of silver, a nation known for its beautiful landscapes, cultural riches and, of course, economic malpractice. A century of (occasionally violent) ups and downs combined with crises of all kinds has eaten away at the country’s once prosperous economy, going from having the sixth highest GDP per capita in the world at the turn of the twentieth century to getting closer with each passing day to its ninth default since achieving independence, a credit event that will be the focus of this guide.
Our objective is to provide all the essential information any investor would need to understand the current situation and p...
On April 15, the G20 agreed on a standstill for bilateral debt service during 2020. Nonetheless, the agreement only applies to IDA-eligible countries. The suspension will be NPV-neutral and will involve repayment over 4 years, including a 1-year grace period.
Multilaterals haven’t found a way to implement a similar standstill. In fact, Fitch Ratings warned them that joining in on the G20 standstill could result in rating downgrades if not appropriately compensated by shareholder countries.
On aggregate, official creditors account for almost 90% of the debt of low-income, and 60% of that of lower middle-income countries, b...
We simulated a possible offer by the Argentine government to foreign law Global Bonds investors
Taking into account debt sustainability guidelines published by the IMF and the Argentine government, we expect an offer to include a reduction in coupons, principal cuts, maturities extension, and a grace period.
Using the simulation as an indicator, and comparing it to market prices for the Global Bonds, we can see the market is expecting aggressive principal cuts and high exit yields.
We expect an offer from the sovereign to bondholders in the next few days.
A larger primary fiscal deficit, product of the COVID 19 Cris...
Two weeks ago, we singled out some early calls for a generalized global debt moratorium in our Global Strategy Viewpoint: Force Majeure. The idea has gained significant traction and is becoming one of the main themes in economic and financial discussion.
While we don’t think a generalized moratorium on commercial bonded debt is likely to succeed, investors should be aware that it is a growing theme and bondholders will probably be under increased pressure to accept attempts at restructuring bond terms.
There are some indications that China is a significant roadblock for the IMF-World Bank initiative for a bilateral debt m...
The fiscal response to the COVID-19 announced by the government could cost 0.67% of GDP (ARS 235.3 bn).
We expect that this program will be completely financed through monetary emission.
The monetary emission to pay the debt in local currency will be limited, so we do not discard a new re-profiling in ARS-denominated debt or a new debt exchange.
The primary fiscal deficit would widen to 3.9% of GDP in 2020, this would be 3.5 pp higher than 2019 result.
The Gross Financing Needs sum up to USD 55,115 mn in 2020, which represents 9.6% of GDP.
Argentina announced a plan to temporarily suspend payments on debt deno...
The clock is ticking, and our view is that bondholders should expect an aggressive offer from the government.
We expect the sovereign to make an initial offer before the end of May, in order to avoid servicing USD 503 m of coupon payments from the foreign law Birad 2021/2026/2027.
Our view is that Argentina is going to reschedule coupon and principal payments arising from bonds with Argentine legislation, due in April and May, without necessarily triggering a cross-default on foreign law.
The country released guidelines for debt sustainability on Wednesday, in order to provide bondholders with guidance for the possib...
The COVID-19 crisis is raising a difficult question of public policy for emerging market economies with low fiscal space, which have to reconcile economic and social policy with debt service.
The relation between liquidity and solvency problems is not straight-forward: the COVID-19 shock, which presents liquidity challenges first and foremost, can unearth underlying solvency problems and can also turn liquidity problems into solvency ones if improperly managed.
We’re already seeing some early calls for an international debt holiday to exempt countries from paying during the COVID-19 crisis. Multilateral organizations are ...
The current crisis will translate into twin demand and supply shocks, with an oil price war on top of it.
The demand shock driven by declines in the world’s main trading partners will particularly affect emerging markets which are characterized by low diversification of exports and production.
Supply chains around the world have been disrupted by factory closures, first in China and now in Europe and the US.
The markets most exposed to a potential slowdown are the major commodity exporters: Venezuela, Ecuador, Angola and the markets most reliant on Chinese and US tourism.
In most EMFI countries the tourism act...
Our EMFI Core Index has fallen 27.6% year-to-date (YTD), while Our EMFI Expanded Index has fallen 19.2%. The last two weeks have been particularly bad, with consecutive 10% declines.
Unsurprisingly, countries heavily reliant on oil have suffered the most. Among our 34-country group, almost every oil-reliant one has fallen more than the 18.3% median.
The second thing that jumps to the eye is that the riskier countries have fared proportionally worse than relatively safer countries, when excluding oil-dependent countries.
We’re also seeing several countries crossing the 10% yield threshold, usually associated with dis...
The outbreak of the Coronavirus, as well as the “oil price war” between Saudi Arabia and Russia have triggered almost complete certainty that a global recession is coming over the next quarter.
Some economists are expecting a 2-quarter rolling recession, but there is potential for the downturn to extend further if the virus reemerges after activity is unfrozen.
Emerging market debt is taking a beating in 2020 so far. The countries we cover registered a median 14.3% fall year-to-date, with the worst performer doing as bad as 60.3% down (Ecuador) and 38.5% down (Angola).
We compare indicators on 4 major categori...
Monetary aggregates growth has accelerated since the Peronist party won the presidency.
Reducing inflation does not appear to be the main target of Fernández administration.
We expect monetary base growth to exceed M2 growth in the coming months and a further increase in the stock of Leliqs.
Since the beginning of the new cepo, the increase in the parallel exchange rate has exceeded the official one.
Exchange control will remain during this administration, so the gap between the parallel and official exchange rates will continue to increase.
Accommodative fiscal and monetary policy could boost GDP expan...
February was a bad month for EM debt, as the market went into risk-off mode pushing bonds to backtrack on the gains made over the previous two months. 11 out of the 15 countries in our EMFI Core Index fell on the month, while the weighted index itself fell 5.8%, retracing below December levels.
Our Expanded Index ex. Core confirms February’s sell-off, registering declines in 21 out of 25 countries and an aggregated fall of 0.9%. Nonetheless, this fall is significantly below that of our EMFI Core Index.
Our selection of countries is clearly biased towards some large and risky high-yielders, which translates to an expectabl...
Although the government of the province had budgeted a positive primary balance for 2019 (1.3% of GDP), the province again accumulated a deficit of 0.7% of GDP until the third quarter of 2019. The fiscal imbalance comes from two factors: i) lower revenues from federal co-participation due to the fall in the Nation's revenues; ii) the increase in provincial spending. Until the third quarter of 2019, the province had only collected 73% of what was budgeted for federal tax revenues.
The 2020 budget was prepared using unfeasible and very optimistic assumptions: a GDP growth of 1% for 2020 and an inflation of 34%. The primary budget d...
In this report we present an index representing the sovereign bonds of the 16 high-yield countries we cover, as well as individual country-level indices. Henceforth we will include our index in our performance sections in our Country Reports
Our approach abstracts away differences in coupons, term and durations by creating a directly comparable measure. This measure is the theoretical price of zero-coupon bond for constant modified duration of 5 years.
Our equal-weight aggregated index (excluding Venezuela) shows a 2.6% price appreciation over the last year, 1.9% over the last three months and 1.1% over the last month. The outs...
In the fiscal scenario that would prevail in 2020 with Fernández's economic program, we expect that the primary fiscal deficit would be 0.87% of GDP, which is an improvement compared to the primary deficit of the Tax reform scenario mentioned earlier (-1.58%).
The fiscal measures implemented in December, especially tax hikes and the return of distortive taxes such as the “tourist dollar” are policies applied during Cristina Fernández de Kirchner’s administration. Although they can temporarily reduce the primary fiscal gap, they have a negative impact on exports and long-term economic growth.
Axel Kicillof’s government released early on Tuesday a public statement calling for BUENOS 10.875 2021 (BUENOS 21O) bondholders to voluntarily agree on a 96-day delay on the amortization, which would be pushed from January 26 to May 1.
The delay proposal released early on Tuesday sent the bonds tumbling to 59.25 (3.89 cents on the dollar down from the previous day’s close). It also prompted falls in the Argentina sovereign bonds (on average 0.46 down) and on the rest of BUENOS bonds (0.98 down).
Current pricing on the BUENOS 21O bond still implies a non-trivial probability of the amortization being carried out. We e...
Today, Finance Minister Martín Guzmán announced a set of fiscal adjustments regarding taxes, tariffs and pensions. Broadly speaking, the economic project aims to eliminate the fiscal measures of Macri’s administration included in the 2017 tax reform and the fiscal pact between provinces.
Market reaction to the economic announcements was slightly positive. Argentinian bonds were up around 1 ½ % after the press conference. The ARGENT 6.875 2021 bond traded at 50.8, up from 49.0 yesterday.
Yesterday, Axel Kicillof’s Province of Buenos Aires performed a coupon payment for over USD ...
On Wednesday night, the Minister of Economy Martin Guzmán presented the macroeconomic guidelines that will be implemented by Fernández’s government.
Guzman's speech showed his inclination towards an interventionist public sector. On the positive side, he emphasized the need for fiscal, monetary and debt policy consistency, but did not give greater details. In yesterday's conference, Guzmán leaned more towards President Fernandez vision, of seeking a new agreement with the IMF without further disbursements. Debt talks with investors and the IMF will begin soon as announced by the minister.
Martín Guzmán leads the list of names that will join President-elect Fernández from December 10.
Out of the most frequently mention candidates for the Ministry of Finance, Guzmán is probably the one with the least favorable view toward bondholders. In his view, Argentina has both a liquidity and solvency problem. At a debt management conference at the United Nations, Guzman proposed a reprofiling of capital and debt interests with the private sector, as well as not taking more IMF loans to meet debt payments. His proposal includes a grace period on debt service for 2020 and 2021. Guzmán also said th...
In an interview with Radio con Vos held on November 26, Alberto Fernández said his government will not take the USD 11 bn disbursement pending from the Stand-By Agreement (SBA) with the IMF, signed in May 2018.
In addition, on November 28 at the Annual Conference of the Argentine Industrial Union, Fernández said he would not stop paying the debt. Nevertheless, "this time this debt will not be paid by those who have less," said the president-elect.
The official announcement of Fernández's economic cabinet will be on December 6, four days before the incoming president takes office. Marco Lavagna...
The Managing Director of the IMF, Ms. Kristalina Georgieva, and president-elect, Alberto Fernández, had a conversation on November 19. During the call, Mr. Fernández stated that the Argentine economy will need to growth in order to reach a feasible repayment agreement with no major fiscal adjustments.
A day after, the director of the IMF's Western Hemisphere Department, Alejandro Werner, said in an interview with Bloomberg the Fund is waiting to see the new government's economic plan to analyze whether fiscal policy is consistent with sustainable debt levels for the next five years.
The Fund has empha...