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Argentina Bonds Fall, Peso Gains as Capital Controls Implemented

Aline Oyamada
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Argentina Bonds Fall, Peso Gains as Capital Controls Implemented

(Bloomberg) -- Argentina’s Eurobonds fell and the peso rallied on little volume as investors adapted to the first day of trading under newly imposed capital controls.

The euro-denominated notes due in 2028 slid 2% to 35.378 cents, while the ones due in 2033 were traded at 37 cents. Amid shallow liquidity, the peso strengthened 6.9% to 56 per dollar on trading that will settle on Tuesday once U.S. markets reopen following the labor day holiday.

Argentina’s government imposed capital controls Sunday to halt a slump in foreign currency reserves and the peso that has pushed the country to the brink of default. The measure came just days after it delayed payments on $7 billion of short term debt and sought to renegotiate payments on $50 billion of bonds.

Capital controls “seemed needed to stabilize the FX without depleting the reserves,” said Delphine Arrighi, a London-based money manager at Merian Global Investors UK. “The ARS is already much weaker than its equilibrium.”

Argentina’s currency crisis appeared to spiral out of control last week. About $3 billion drained out of foreign currency reserves on Thursday and Friday alone as the government struggled to repay short-term debt. The country risked exhausting its net reserves, which stand at under $15 billion, within weeks if it kept losing money at that pace.

The capital controls seem to have eased the pressure, at least for now. Peso futures due September saw the currency trading at 56.7 per dollar, compared with futures of over 65 on Friday, according to Rofex website. Still, the blue-chip exchange rate, which indicates where the peso would be without currency controls, was trading at about 66 per dollar.

“It is another worrying sign that history is repeating itself,” Capital Economics economist Edward Glossop wrote in a report on Monday. “A prolonged period of capital controls would be very concerning.”

The century bonds have lost half of their value since Mauricio Macri’s shock defeat in the primary election on Aug. 11 triggered a broad sell-off. While initially many analysts said the 40 cents per dollar level could serve as a floor for the bonds, markets are now more pessimistic.

“It can go much lower as the big guys start to sell,” said Alain Nydegger, a money manager at Pala Assets Holdings Ltd. in Zurich. “It is very hard to be optimistic here.”

(Updates assets prices in second paragraph, adds peso prices in sixth paragraph.)

To contact the reporter on this story: Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Philip Sanders

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