Argentina's Macrisis: Country risk surpasses 1000 basis points
A selloff in Argentine bond markets today pushed the nation's 'country risk' to close above 1000 points for the first time in over five years.
The index, based on JP Morgan’s Emerging Markets Bond Index (EMBI) yield for Argentine bonds over the yield of U.S. Treasuries of comparable maturity, reached 1013 points today, an increase of 28 basis points.
The trend has pushed yields on the two most subscribed Argentine bond issues, Bonar 2020 and Bonar 2024, to 19% on the secondary market - the highest in the world for performing sovereign bonds.
The steady increase in the country risk, from around 400 points in early 2018, comes as investors have become increasingly skeptical of Argentina's ability to repay its mounting foreign debts - which now exceed $200 billion in the public sector alone.
Scheduled debt payments over the next four years already total over $148 billion.
Debt service has ballooned from 6% of the federal budget in 2015, to 20% this year, forcing cuts in infrastructure, health, and education budgets amid a deep recession and massive job losses.
Vulture culture
This was Argentina's highest country risk index since February 5, 2014 - at the height of the vulture fund dispute, when holdouts led by Paul Singer's Cayman Islands-based hedge fund NML had a Manhattan court block payment to Argentina's foreign bondholders in order to collect a 1600% payout.
An $8.9 billion payout to holdouts in April 2016 by recently-elected President Mauricio Macri (netting NML an estimated 1180%) was touted as a sign of "Argentina returning to the world."
Macri then issued $122 billion in sovereign bonds and notes over the next two years - second only among emerging markets to South Korea.
Foreign investors lost interest in Argentine bonds in February 2018 however, leading to the implosion that April of a domestic carry-trade debt bubble known as the "financial bicycle."
Shut out of global bond markets, Macri turned to the IMF, where he secured a $56 billion high-access stand-by credit line - the most restrictive kind, and one which only three other crisis-wracked countries (Iraq, Jamaica, and Kenya) currently have.
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Argentina's Central Bank has responded to investor worries over the payability of the country's mounting public foreign debt by raising its key interest rates to over 70%.
Offering high yields succeeded in stanching capital flight somewhat; but it's also led to effective lending rates of 90% or more for local businesses, further deepening the most severe recession in two decades.
