Bonds News

Emerging markets-Argentina debt leads as dollar windfall seen

NEW YORK, July 21 (Reuters) - Argentina’s bonds rose for a third straight day Monday as the end of a crippling farmers’ protest opened the door to an anticipated multibillion dollar influx from exports of hoarded grain.

Argentine President Cristina Fernandez on Friday repealed an export tax hike on soybeans, the day after her vice-president sided with the protesters and cast the deciding Senate vote to to scrap the tax increase.

“With the the revoking of the tax hike in export grains, people are becoming more confident about the economic growth outlook in Argentina as grain production and exports re-normalize,” said Nick Chamie, head of emerging market research at RBC in Toronto.

“That will reduce the risk premium on Argentine debt,” he said.

Higher risk usually weakens bond prices.

On Monday, Argentina’s portion of the JP Morgan’s Emerging Bond index Plus (Embi+) rose 1.09 percent. Yield spreads over comparable U.S. Treasuries fell by 6 basis points to 593 bps.

Overall emerging market yield spreads over U.S. Treasuries narrowed by 4 basis points to 280 basis points, and total with total returns rose 0.1 percent 11EMJ.JPMEMBIPLUS.

On Monday, Argentina's benchmark Par dollar-denominated bond due in 2038 ARGGLB38=RR rose 0.813 point in price to bid 34.438, with a 10.031 percent yield. It has risen more than 7 percent in price after sinking to a two-year low on Wednesday.

The presidential repeal closed a chapter on four months of farmers’ unrest, which sparked roadblocks and domestic food shortages. It also drove farmers to hold back grain exports in protest over export taxes of as high as 49 percent or more on soy, the country’s biggest single export.


Some Wall Street analysts expect a sudden influx of at least $3 billion from exports of grain, which farmers had largely held back from market since March.

“Given current prices and the estimate of crop hoarding that backlog of U.S. dollar sales is likely about $3.5 billion,” JPMorgan wrote Monday. “(Argentine) economic activity, the trade surplus, tax revenues and U.S. dollar inflows are all bound to improve.”

An influx of dollars would allow the central bank to rebuild about $2.7 billion in foreign reserves it spent to shore up the country's peso ARSB= during the political crisis.

On Monday, credit markets showed relief by cutting the cost of insuring Argentine debt by 2.4 percent, according to Markit data on the credit default swaps.

During the farmers' protest, the annual cost of insuring $10 million in Argentine debt over a five-year period rose to $750,000. according to GFI data on the benchmark five-year CDS contract ARGENT5UA=GFI.

The annual insurance has been subsiding since Wednesday and on Monday stood at $640,000 -- still above the $562,000 it cost before the Argentine government decreed the soy tax hike.

Argentina defaulted on $100 billion in debt between 2002 and 2005, and its CDS costs are some of the highest among major emerging market government borrowers.


On Monday, emerging market equities .MSCIEF rose 2 percent and Latin American equities .MILA00000PUS gained 1.8 percent, according to Morgan Stanley Capital International.

They outpeformed weakening U.S. equities as well as global equites overall.

Among Latin American equities, Brazil's Bovespa .BVSP index rose 1.6 percent.

More than two-thirds of the advance was due to a rally in steel and iron ore mining stocks, Reuters data showed. Shares of Brazilian steelmaker CSN CSNA3.SA jumped 4.7 percent after industry sources told Reuters that Russian, Indian, Chinese Japanese companies were bidding for a CSN iron ore unit.

On the currency front, the Mexican peso MXN= held its ground at a five-year high, reached when the country's central bank raised its base overnight interest rate to 8 percent last week.

The peso MEX01 gained 0.3 percent to 10.1525 per dollar.

The Brazilian real BRL=BRBY, the region's other heavyweight currency, gained more than 0.4 percent to 1.580 reais per dollar, its strongest since January 1999. (Additional reporting by Hilary Burke in Buenos Aires; Editing by Tom Hals)