(Updating story throughout with latest bond levels and trader comments)
By Paul Kilby
NEW YORK, Nov 23 (IFR) - Argentine bond prices were giving back some earlier gains on Monday as investors took profits following a widely expected victory for market favorite Mauricio Macri in the presidential elections over the weekend.
Bonar 2024s were being offered at 103.00 after being bid at that level earlier today, while dollar discounts were bid at 115.50 after hitting 116.00 earlier in the session.
“As we expected sellers are coming out,” said Joaquin Almeyra, a fixed-income trader at Bulltick. “The market is happy about a Macri victory but that was already priced in and the next steps will not be easy.”
Argentina debt prices are likely to go through a period of adjustment over the next few months as holders await new buyers seeking to benefit from any eventual upside in economic growth and a resolution with holdouts.
“There are a bunch of investors who have been involved in Argentina waiting for this and for someone to take them out of the trade,” said Jody LaNasa, managing partner at hedge fund Serengeti Asset Management
“They are waiting for the next generation to buy and that probably will take a couple of months.”
The relatively restrained rally underscores investors shifting focus to the challenges faced by the incoming administration in implementing policy changes and ending the decade-long battle with holdout investors.
The outcome of the election will not immediately impact the ratings of a country that still suffers from balance of payment pressures, a distorted exchange rate, and high inflation, said Fitch, which still rates Argentina as RD - restricted default.
High fiscal financing needs at a time of dwindling reserves means the new government will have to quickly regain access to new financing sources, analysts say.
“We think the government priority is to get foreign exchange reserves, which requires an agreement with holdouts, which in turn requires Congress’s support,” said Fernando Sedano, an Argentina economist at Morgan Stanley during a conference call Monday morning.
Robert Tancsa, a fixed-income strategist at Morgan Stanley, thought that the US court judge presiding over the case may grant a stay - and hence some breathing space - if the new government showed a strong commitment to reaching a negotiated settlement with the holdouts.
Such a move may free up what is expected to be about US$3bn in coupon payments set aside for restructured debt holders, said Tancsa.
Some of those creditors have not been paid since the summer of 2014 when the US court blocked the country’s ability to make payments unless it made holdouts whole as well.
Commitment from the government may require it to post some collateral in the form of bonds while negotiations take place, said Tancsa, who thinks a final settlement may not be finalized until the second half of 2016.
For now, the market is awaiting the announcement of any new policy initiatives once Macri takes the reins of power on December 10.
This is expected to include the elimination of some FX restriction, a readjustment of economic data to better reflect reality and a lowering of export taxes to encourage the sale of soft commodities - a move that could bring in between US$5bn-US$10bn of export revenues.
“We have less than 20 days before the new government steps in and that is not enough time to make all these arrangements,” said Almeyra. “It will be tough.” (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)