According to an analysis carried out by the consulting firm 1816, “so far in 2022, Global bonds fell 10.3%” on average, in contrast to the 3.8% that the debt of the rest of the emerging countries contracted. “Since December 2020, Argentina has had a beta of 2,” the document continues, and clarifies: “This means that it moves twice as much as other emerging countries.” This situation, they explain from the consultant, is not “so different” from what happened in recent weeks, which is why they considered that “it is debatable that a default to the IMF has already been put into prices.”
What can happen if Argentina fails to comply with any of the payments scheduled with the agency for the end of January, the beginning of February or the largest one in March? In technical terms, the country would default from the zero moment and this would close the doors to receive new financing from the agency. However, the period during which the non-payment is sustained is an important piece of information, since this also determines the institutional mechanisms followed by the IMF.
Beyond the formal issues, there is another sensitive nerve to watch and that is the price of sovereign bonds. According to Pedro Martínez Gerber, an economist at the PxQ consulting firm, the current price of the bonds does not contemplate “the non-agreement with the IMF.” “The bonds pricean something similar to what priceaban a few months ago but incorporating the new international scenario with more inflation and rate hikes”, assured the economist in dialogue with Ámbito. “All emerging debt has been affected by this phenomenon,” the specialist remarks. What prices do currently have included is a possible renegotiation between 2024 and 2025. “For months it has been observed that bonds pricean a non-payment in 2024/25”. “That is, beyond the agreement with the IMF, the market is priceando that there is going to be a new restructuring of the debt with the private sector”, he clarifies.
Martínez Gerber puts numbers on it. “We simulate a restructuring scenario in 2025, which is when maturities with private creditors get really heavy,” he details. The calculation gives them the result that, if the current prices of global bonds are compared and an exit yield of 15% is taken, “you only lose money with a haircut of around 65% on the capital.”
According to the economist Martin Vauthier, from Anker Latin America, “a non-payment to the IMF could have an additional consequence on bond prices, but that will depend on how that non-payment occurs and how the market interprets it.” In addition, adds the specialist, it is important to consider what are the signals that the government sends in case this happens. If the default is accompanied by “a rhetorical fight with the IMF”, Vauthier reasons, the market may interpret that “this further distances the prospects of an agreement and could have a negative impact on the price of bonds, which are already very low”. “Now, if it is not paid but the market perceives that the negotiation continues and the government gives positive signals in that sense (ideally that there is some consensus with the Fund and the Fund agrees) in that context the impact would be much more limited” , he assures.
The Empiria economist Juan Ignacio Paolicchi agrees, but adds one element. “Bonds in Argentina are very idiosyncratic and sometimes when emerging market bonds (excluding Argentina’s) were flat, Argentina went up or down and it was indistinguishable from external factors.” “I think that in the current price there is an idiosyncratic part, part of this noise with the IMF, but there is also some external factors that put downward pressure on prices, such as global inflation or the prospect of raising rates from the Fed” .
Source From: Ambito
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