​The formal end of Default

ARGENTINA - In Brief 22 Apr 2016 by Esteban Fernández Medrano

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Today, once government pays Holdouts their judicial claims and with it enables BoNY to receive payments for restructured debt holders, Argentina will formally end a more than 14 years default. This represents (much needed) good news, not just for the sovereign, but for the economy as a whole as it should eventually further lower Argentina´s country risk and with financing costs and market demand for local corporates. While the macroeconomic outlook is far from rosy, capital-market’s interest on “Argentina’s return” has been strong. The clearest indicator has been the high demand for this week’s USD 16.5bn debt placement, announced on Tuesday by the government. Even after raising the size of the placement to USD 16.5bn, compared to an initial objective target range between USD 11 to 15bn, the issue was still more than 4 times oversubscribed. This allowed the government to place the new debt very close to the existing curve without having to pay a significant spread to absorb the new supply (+-20pbs, depending on the tranche of the curve). The table below summarizes de issuance of 2, 5, 10 and 30 year bonds. Looking forward, the end of default has some practical financial consequences that might be worth considered. Given Argentina’s broad-based absence from the financial markets over the last years, its weight in most global investment indices (emerging, Latam etc) is today below what might be considered, under normal circumstances, a representative investment level considering the size of the economy its global trade, etc. This opens up, in particular when credit agencies might start to revalue Argentina’s risk assertion, the outlook of a likely appetite for local asse...