Argentine Bonds Extend Rally as Kicillof Sparks Deal Optimism
Argentine bonds surged the most since October, extending a rally sparked by Economy Minister Axel Kicillof’s comments that resolving a decade-long dispute with creditors is inevitable.
Dollar bonds due 2033 jumped to 99 cents on the dollar at 3:13 p.m. in Buenos Aires, extending their two-day gain to 3.525 cents. Kicillof was quoted in La Nacion newspaper Tuesday saying that while negotiations failed last year with investors who sued the country over its $95 billion default in 2001, the two sides should “sit down again at some point.”
The comments are a departure from Kicillof’s usual rhetoric, sparking optimism that he is laying the groundwork for Daniel Scioli, a party ally and the frontrunner for presidential elections, to settle with the holdouts, said Alejo Costa, a Buenos Aires-based strategist at Puente Hnos. SA. The dispute triggered Argentina’s second default in 13 years and prevents the nation from tapping international bond markets.
“The market sees this as part of an effort by Scioli to appear more moderate and prone to gradualism,” Costa said.
Morgan Stanley yesterday recommended buying the nation’s debt and said stocks will rally with even a moderate adjustment in economic policy. While Scioli has publicly aligned himself with President Cristina Fernandez de Kirchner’s policies, he will probably implement gradual changes needed to bring the country back to debt markets, the bank said.
Bonds have rallied an average 66 percent over the last two years on speculation Fernandez’s successor will unwind policies that have fueled inflation and left the country unable to raise funds with overseas bonds.
Policy Shift
“Investors are hopeful that after the October elections there will be a significant policy shift that will not only reopen the capital markets for Argentina but will also enable the country to grow in a sustainable manner,” analysts including Guilherme F. Paiva wrote in the report.
Among the bonds, the bank favors Argentina’s 2017 international dollar bonds and so-called discount notes in dollars and euros that are due in 2033.
Investors who believe that the next government will bring about change have been looking for an opportunity to buy more bonds, said Patrick Esteruelas, a senior analyst at money-manager Emso Partners.
“Kicillof’s interview was the flimsiest of catalysts,” he said from New York. “As people have gotten more comfortable with the notion that a Scioli win can still guarantee a pathway to a settlement and an exit strategy for large bond positions, they’ve been looking for opportunity to add.”
Opinion Polls
As recently as June, Scioli scolded his rival candidates for wanting to pay the holdouts, led by hedge fund Elliott Management. The creditors rejected the terms of two debt swaps and in 2012 won a U.S. court ruling prohibiting Argentina from making payments on its overseas bonds until the holdouts are paid in full. A default was triggered in July 2014 after Kicillof offered Elliott the same terms as the rejected swaps.
Scioli is expected to receive the highest number of votes in Sunday’s primaries, according to opinion polls. Investors will be watching how closely the opposition’s Mauricio Macri trails Scioli as a gauge for performance in the Oct. 25 elections. There will be a run-off on Nov. 22 if the winner of the first round fails to get 45 percent of the votes or more than 40 percent with a 10 percentage point advantage.
Scioli said late Tuesday in a television interview that he would gradually ease currency controls for individuals to buy dollars and for companies to repatriate dividends. Subsidies should be given only to those who need them, he said.
“The credit will also be supported after the August 9 primaries as the market could reassess more positively Mr. Scioli’s willingness to implement a gradual reform agenda, leaving both of the front runners with a reform-oriented policy approach,” the Morgan Stanley analysts wrote in the report.
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