Argentina Bond Risk Sinks Most in Region as GDP Forecasts Climb (bloomberg.com)

Aug. 5 (Bloomberg) -- Argentina bond risk fell the most in Latin America over the past three months as quickening economic growth and a $12.9 billion debt restructuring boosted confidence in the country’s ability to pay its debt.

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps tumbled 85 basis points, or 0.85 percentage point, in the three months through yesterday to 794, according to CMA DataVision. The decline is the biggest among emerging-market countries after Pakistan, whose default insurance sank 162 basis points to 498.

Argentine default swaps may plunge another 200 basis points by the end of the year as surging exports of soybeans and wheat propel growth in South America’s second-biggest economy, said Nick Chamie, global head of emerging-markets research at RBC Capital Markets in Toronto, a unit of Canada’s biggest bank. Economy Minister Amado Boudou yesterday boosted his growth forecast for this year to 7 percent from about 6 percent.

“The commodity price backdrop is strong for Argentina,” Chamie said. “The five-year CDS still has reasonable prospects to grind in slowly.”

Argentine bonds posted a 13.9 percent advance last month, the most among 46 developing countries in JPMorgan Chase & Co.’s EMBI Global Diversified Index.

Goldman Sachs Group Inc. predicts Argentina’s economy will post the biggest expansion in Latin America this year with growth of 8 percent amid a record grain harvest, high commodity prices and strong demand from trading partners.

Debt Restructuring

Five-year credit-default swaps tied to Argentine debt plummeted 175 basis points since President Cristina Fernandez de Kirchner completed the restructuring of defaulted debt on June 22. The settlement, which paves the way for Argentina to tap international bond markets for the first since its record default on $95 billion of debt in 2001, prompted Fitch Ratings to boost the country’s credit rating to B from default.

A basis point equals $1,000 annually on a contract protecting $10 million of debt. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

The extra yield investors demand to own Argentine government bonds instead of U.S. Treasuries fell 28 basis points, or 0.28 percentage point, yesterday to 669, according to JPMorgan. It’s down from 846 on July 1.

The yield on Argentine dollar bonds due in 2017 fell 10 basis points to 9.83 percent yesterday, the lowest since they were issued to creditors as part of the debt swap. Boudou postponed plans to sell up to $1 billion worth of the notes during the debt exchange, saying the country wouldn’t accept a yield of 10 percent or above...

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