After $25B In Emerging Market Bond Flows, Is Argentina A Safe Bet?
By: Dimitra DeFotis
Argentina’s bond sales follow years of court fights after a default, and a political reversal that began with the election of President Mauricio Macri in late 2015. Argentina’s debt is still rated below investment grade, or as “junk.”
Nomura Securities Siobhan Morden, head of Latin America fixed income strategy, notes that $25 billion has flowed into emerging market bond funds this year as investors search for yield. She remains positive on a strategy of investing in cheap Argentina sovereign bonds. She writes:
“Another week of inflows into EM debt funds continues to support the high yielding credits and Argentina’s status of most favorite overweight within Latin America. The inflows into EM debt funds have slowed according to EPFR; however inflows at $1.6 billion remain robust with year-to-date inflows of near $25 billion and 6 consecutive weeks of average inflows of $3 billion. This exceeds the March-April period of average weekly inflows of $1.2 billion when credit spreads were much cheaper. Although benchmark EM credit spreads are compressing to 12 month lows, favorable global liquidity conditions suggest still a slow grind tighter with few options other than the high yielding single B credits like Argentina. Argentina shifted to overweight status in June with positioning risk and negative headlines likely contributing to the recent relative underperformance which has since reversed towards strength over the two weeks.”
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