Argentine bonds: despite recent improvement, they still perform worse than several African countries

Argentine bonds, like emerging markets, halted their bullish rally when instability on Wall Street and the fall in commodities hit risky assets in April. However, They are expecting to resume an upward path in the remainder of 2024, given the possible drop in rates in the US in September.

“Argentina’s 10-year bond yields 17.8% (as of August 15)between three and four times more than the performance of a simple average of Latin American countries, excluding Bolivia and Ecuador, which are experiencing significant deterioration in their economies,” highlighted the latest report from Quantum Finanzas, the consulting firm run by Daniel Marx.

How bond yields have fared in recent years

Between September of last year and today, the average price of sovereign debt in dollars has had a very significant recovery. since it started from an average price –weighted by amount- of US$25 and reached US$47, which implies an increase of 67%. It should be noted that, as a consequence, its annual yield fell from 35% to 21%.

Now, The report reveals that between September 2023 and the end of April 2024, the price recovery had been greater, when it rose by 105% (reached US$51). “The trend was reversed in May 2024, with an average current price 10% lower than that relative maximum and a yield that increased in that period by 400 bps (to 21% annually),” they highlighted.

In this regard, it is important to note that at the end of April The deterioration of the international context generated a negative impact on emerging countries, with greater volatility in stock and bond prices.although elements specific to Argentina were added to this.

Bonds in comparison: still underperforming several African countries

According to Quantum, Argentina’s 10-year bond yields 17.8%, which is between 3 and 4 times more than the yield of a simple average of Latin American countries, excluding Bolivia and Ecuador.which are experiencing significant deterioration in their economies.

Inclusive, Argentina’s debt yield is higher than that of other emerging African countries, such as Egypt (10.8%), Kenya (10.9%) or Congo (13.4%)countries that were affected by political tensions, extreme weather situations, currency and credit events, among other adverse circumstances.

It should be noted that the countries mentioned have extended facility programs in force with the IMF.

“The Argentine economy is much more robust than it was a few months ago. The fiscal surplus is registered, the BCRA balance sheet has been cleaned up, relative prices have been adjusted, inflation is declining and an incipient economic recovery is observed, at the same time that important reforms are being introduced to the regulatory framework for the development of activities. This contributed to the observed jump in prices and the reduction in sovereign debt yields,” they explained from Quantum.

From the same report they expanded that, in these days, The attention of financial operators with positions in Argentina seems very focused on how to resolve exchange rate tensions, beyond the seasonal factors associated with the agricultural cycle.

“We note that there is additional scope for further yield compression (price rise). However, achieving this in time for Regaining access to the international market requires new advances in policies that reinforce confidence, taking advantage of the foundations provided by recent changes.“, they closed.