Argentina’s plans to start issuing big chunks of debt again for the first time since 2001, when it declared the biggest sovereign default in modern history. It may seem surprising, bizarre even, that Argentina should be borrowing so soon since it last went bust. Yet the government today intends to sell $350 million in peso-denominated bonds on the local capital markets, mainly to Argentine banks and pension funds with few better investment options, plus a sprinkling of devil-may-care foreign hedge funds. This comes on top of about $18 billion in peso-denominated bonds it has issued since 2001 to compensate banks and domestic bondholders. The government will use the money from today’s issue to refinance maturing bonds, not increase its indebtedness.
Still, it is astonishing that investors would voluntarily buy these bonds. Clearly, few people can resist the overwhelming attraction of yield. Greed really is a stronger instinct than fear. And Argentina’s debt service bill is almost negligible following February’s debt swap. That deal leaves lots of room for more issuance. A Wall Street investment banker says without a trace of embarrassment that he could see the government returning to the global markets this year and easily raise money at only 500 basis points over US Treasuries. Later in the conversation the same banker said that under the leadership of President Néstor Kirchner “Argentina is spinning out into nothingness”.
Argentina still hasn’t closed the February deal. That deal, which slashes its bonded debt by roughly 75%, is on hold pending a decision from a New York appeals court over a case involving a small group of investors. They rejected the February deal and are holding out for a better deal. It is amazing, but true, that while one bunch of creditors is waiting to get paid, another bunch is lining up to buy fresh Argentine bonds.