Natalia Gurushina, Economist, Emerging Markets Fixed Income
February 12, 2020
Yesterday’s debt scare in Argentina—the failed bond auction and the subsequent announcement that the payment of the Dual AF20 bonds (principal) will be delayed until September 30—was dealt with quickly and in a reasonably market-friendly fashion. The government said that it will allow investors to use the original bonds to subscribe to new debt auctions at par value, which means that they might not have to wait until September to get paid. Portfolio Manager Eric Fine is currently in Argentina, seeing government officials and the private sector and we will be sending his impressions as soon as meetings start. In the meantime, he reports that Argentina’s most famousbond collateral—frigate Libertad that was seized by Elliott Capital Management—is safe and sound inside Argentine waters (see picture below).
India’s data releases this morning looked very stagflationary. While December’s industrial production dropped 0.3% year-on-year (a big downside surprise), headline inflation accelerated more than expected to 7.59% year-on-year (the highest since 2014). January’s core inflation also picked up, but it looked much more “palatable” at 4.19% year-on-year. Further, the base effect should become more supportive going forward. So, we would not be surprised if this opens door for more rate cuts later this year.
Is this the endgame for Lebanon’s debt? Today’s headlines suggest that bondholders formed a group to talk to the government, which is quickly running out of options regarding the repayment of 2020 eurobonds. There were earlier reports about technical assistance from the IMF, but the market increasingly questions the government’s willingness to pay, which explains the recent price action.
Chart at a Glance: Argentina’s Most Famous Bond Collateral – Frigate Libertad
Source: Portfolio Manager Eric Fine Note: The Argentine navy’s training ship Libertad was seized by Elliott Capital Management hedge fund during the previous debt restructuring battle.
IMPORTANT DEFINITIONS & DISCLOSURES
PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
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