Argentina Bonds Are Losing Even After a Record IMF Bailout

(Bloomberg) -- Argentina bond investors couldn’t catch a break in 2018, with yields on the country’s debt soaring even after the government took out a record $56 billion credit line with the International Monetary Fund in an effort to bolster public finances.

The average yield on sovereign notes from the country has almost doubled this year to 11 percent, and now tops the 10.9 percent rate on overseas securities from much smaller Ecuador, which has the dubious distinction of having the second-most defaults in the world since 1800. While both credits are considered junk by rating companies, Argentina holds a B grade from S&P Global Ratings, one step higher than Ecuador’s B-.

Argentina Bonds Are Losing Even After a Record IMF Bailout

In terms of returns, Argentine creditors lost 23 percent on average this year, according to JPMorgan Chase & Co. indexes, while Ecuador’s investors have lost 9.4 percent.

Politics has a lot to do with it. President Lenin Moreno has continued to push Ecuador through a drastically different agenda than his predecessor in an attempt to shore up public finances and there’s even the possibility of officials sitting down with the IMF in 2019 to bolster confidence further. While the dollarized nation remains vulnerable due to its dependency on crude oil and loans from China, most analysts see the government as on the right path.

Argentina’s Mauricio Macri, while widely respected by investors, is preparing for a re-election run in 2019 with inflation expected to be north of 20 percent and an economy in recession. His vulnerability, particularly with the possibility of former President Cristina Fernandez de Kirchner challenging him for the presidency despite a myriad of legal woes, has traders on edge.

So one might ask whether the market or rating companies are miscalculating the situation.

©2018 Bloomberg L.P.