Argentine devaluation hits Latin bonds
Fixed income markets across Latin America suffer as investors grapple with the sharpest fall in Argentina’s currency since 2002
Latin bonds and currencies were nursing their wounds Friday
while bracing for more pain ahead following a sharp market
sell-off triggered by an abrupt fall in the Argentine
The currency on
Thursday suffered its sharpest fall since 2002, touching ARS8.2
per dollar from ARS6.9 earlier in the day. By Friday afternoon
it was trading at close to ARS8 per dollar. The peso returned
from its weakest point after the central bank sold
Bonds sold by
Argentine provinces were seen on Friday trading 10 points lower
than before the devaluation, while local market notes across
Latin America continued to struggle.
|| Argentine CDS, 24 Jan 2013 - 24 Jan
|| Source: Markit
"Some of these
high yield countries are starting to crack. And
that’s where a lot of alpha is generated for the
buy side," said Carl Ross, managing director of investments at
Oppenheimer, pointing also to Venezuelan notes.
While the market
had "seized up", Ross added that there was little fundamental
change in the underlying economic data. "I think it is mostly
noise," he said.
bonds were being "beaten up", said Jonathan Lemco, sovereign
strategist at Vanguard. That was a result of a sweeping range
of concerns hitting global emerging markets —
including riots in the Ukraine and Chinese purchasing
managers’ index data that indicated that economy
was contracting — as well as the Argentine
devaluation, he said.
Argentine CDS were heavily hit, reaching 2,535bp on Friday
afternoon after closing at 2,373bp the previous day, according
to Markit. Venezuelan CDS also suffered, reaching 1,408bp on
Friday afternoon, up more than 40bp on the day.
Latin sovereigns Brazil, Colombia and Mexico were not immune,
however: their CDS widened 10bp to 12bp between Wednesday and
portfolio manager and co-president of Greylock Capital
Management, said the spill-over was exaggerated. "Losses lead
to losses, and people start doing other things to stop the
bleeding. It can become self-fulfilling," he said.
described the fall in the peso as "one of the first
economically rational things" that Argentina has done for some