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S&P
Global slashed Argentina's rating to CCC- into the deepest area
of junk debt, saying a plan announced on Wednesday by the
country's government to "unilaterally" extend maturities of many
of its bonds had triggered a brief default.
Importantly, it also took the average rating between the big
three rating firms - S&P, Moody's and Fitch - down to CCC. For
many big German institutions that level is classed as too risky
to hold under Versicherungsaufsichtsgesetz or VAG rules.
It saw Argentina's 2033 euro-denominated bonds slump nearly 5
cents <AR020554584=> and a 2027 version drop nearly 2 cents
<AR150316049=>.
"A CCC rating is actually more meaningful than a default
(rating)," Aberdeen Standard's head of emerging market sovereign
debt Edwin Gutierrez said.
"German pension funds can't hold CCC so that is actually the
bigger trigger for selling," he said, adding that its rules
weren't as strict on default-stricken bonds.
Friday's selling extended the rout in Argentina's markets since
business-savvy President Mauricio Macri was thumped by
populist-leaning Peronist Alberto Fernandez in primary elections
earlier this month.
Buenos Aires more widely held dollar bonds continued to suffer
too. A benchmark 2028 bond <040114HQ6=> lost another 0.7 cents
while a 2022 one dropped 1 cent. <040114HK9=>
Investors in Argentina fear a return of the left to power could
herald a new era of heavy government intervention in Latin
America's third-largest economy.
They also suspect that the plan to extend maturities will do
little more than buy time and not be able to prevent a more
serious default further down the line.
A hundred-year bond Argentina issue to much fanfare two years
ago is trading at a record low of 40 cents on the dollar,
showing the kind of write-down markets are now bracing for.
"We are probably around fair value (in bond prices) but it is
the nature of these beasts that the price always overshoots
(before it levels out)," said Gutierrez.
The cost of insuring exposure to Argentina's sovereign debt also
rose, with the country's 5-year credit default swaps reaching
3,618 basis points, up 19 basis points from Thursday's close,
IHS Markit data showed.
(Graphic: Argentina 5-year credit default swaps link:
https://fingfx.thomsonreuters.com/
gfx/mkt/12/5382/5332/Capture1.png)
(Reporting by Marc Jones; Editing by Tom Arnold and Hugh Lawson)
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