Strong Demand for Argentina’s 100-Year Bond

Argentina sold $2.75 billion of a hotly demanded 100-year bond in US dollars on Monday, just over a year after emerging from its latest default, according to the government.

The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9% in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns, CNBC reported.

Thanks to a stronger-than-expected peso currency, the government has increased its overall 2017 foreign currency bond issuance target to $12.75 billion from its previous plan of issuing $10 billion in international bonds, Finance Minister Luis Caputo told reporters in Buenos Aires.

Argentina is going to the international capital markets to help finance a fiscal deficit of 4.2% of gross domestic product this year. Caputo said Argentina has $2.6 billion in bonds left to be issued this year. The new paper could be denominated in euros, yen or Swiss francs.

The new bond had a coupon of 7.125%, the finance ministry said in a statement that hailed success of the sale as evidence that Argentina had regained “credibility and confidence.”

Still, the move came as a surprise given Argentina only last year ended a decade-long dispute with creditors over its 2002 default and residents tend to frown upon accumulating debt in dollars.

“Implicitly, this shows market confidence that the government will be able to change the idiosyncrasy of the country and will end the borrow and default cycles. Will it?” said Edgardo Sternberg, Emerging Market debt portfolio manager at Loomis Sayles.

 Bond Prices Fall

Argentine sovereign bond yield spreads over US Treasuries widened six basis points, the widest in a month at 412 basis points. Argentina’s $2,038 bond fell 1.5 cents while the 2,046 bond issue fell 2.6 cents. The 2,032 par bond was down by 1.5%.

Though the bond appeared to be well oversubscribed, some investors questioned the wisdom of investing for such a long term in a country as volatile as Argentina.

“It’s awfully premature for Argentina to issue 100-year bonds,” said Jorge Piedrahita, chief executive officer of Puma Investments. “When you look back in history, I’m not sure we can find a 20-year period where Argentina has not defaulted.”