July 22 (Bloomberg) -- Argentine dollar bond yields relative to Venezuela’s are rising, narrowing the gap from the widest in a decade, as investors bet President Cristina Fernandez de Kirchner will have more difficulty than her counterpart Hugo Chavez in meeting debt payments next year. Argentine dollar bonds yielded an average 10.74 percent yesterday, 376 basis points, or 3.76 percentage points, less than the rate on Venezuelan debt, according to JPMorgan Chase & Co.’s EMBI+ index. The difference swelled to 412 on July 7 as Argentina’s Fernandez restructured $12.9 billion of defaulted debt, pushing yields lower.
While the debt swap may bolster Argentina’s access to international capital markets, the country faces increased debt payments, owing about $10 billion in dollar bond payments in 2011, more than triple the $3 billion that Venezuela must pay, according to Credit Suisse.
“Over time, that spread should come in, based on the challenging financing schedule that Argentina faces in the next couple of years,” Bret Rosen, an analyst at Standard Chartered Bank in New York, said in a telephone interview. “The widening of the spread gap is a bit exaggerated because the upcoming amortization schedule for Venezuela is not particularly onerous.”
2001 Default
The 412 basis-point yield difference was the widest since 2000, a year before Argentina defaulted on $95 billion of bonds. The gap swelled as Chavez, 55, tightened restrictions on access to foreign currency, pushing yields higher, while the debt exchange by Fernandez, 57, sparked speculation Argentina will attract more foreign capital. In April 2009, Venezuelan debt yielded 512 basis points less than Argentine bonds.
Since the difference between the two countries’ bonds peaked July 7, the average yield on Argentina’s dollar debt has fallen 45 basis points to 10.74 percent, versus an 80 basis point decline to 14.5 percent for the equivalent Venezuelan securities.
Venezuela is South America’s largest oil producer.
“In terms of payment capacity, in Venezuela it’s huge, so it’s not a problem,” Igor Arsenin, a debt strategist with Credit Suisse AG in New York, said in a telephone interview yesterday. “In the case of Argentina, the problem is liquidity.”
Crude oil, which accounts for about 95 percent of Venezuelan exports and half of government revenue, has rebounded 5.4 percent to $76.39 a barrel from a six-week closing low on July 6. Venezuela has the highest borrowing costs among the 15 countries in JPMorgan’s EMBI+ index at an average 12.2 percentage points over U.S. Treasuries this month, while Argentina has the third-highest at 7.69 percentage points, following Ecuador.
Venezuela is rated B2 by Moody’s Investors Service, or one level above Argentina. Standard & Poor’s rates Venezuela BB-, or three steps higher.
Creditor Lawsuits
Fernandez’s restructuring last month lifted total creditor participation since the government default in 2001 to above 90 percent. That may not be enough to allow the government to avoid lawsuits by holdout creditors if it tries to sell international bonds, Rosen said. Economy Minister Amado Boudou said June 23 that $4.5 billion worth of defaulted bonds remain in the hands of creditors pursuing litigation after the latest swap.
Argentina “has no access to the market, so it’s always struggling to meet its needs,” Arsenin said.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 32 basis points yesterday to 881, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
‘Political Noise’
The peso rose 0.1 percent to 3.9326 per dollar yesterday. The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries fell three basis points to 743 yesterday, according to JPMorgan. The difference is down from 846 on July 1.
Yields on Argentina’s benchmark dollar bonds due in 2015 slid nine basis points to 11.34 percent, according to pricing from Deutsche Bank AG. Warrants linked to economic growth fell 0.25 cents on the dollar to 8.9 cents.
Both Argentina and Venezuela are benefiting from a resurgence of investor appetite for higher-yielding emerging market bonds in recent weeks, said Jim Craige, who helps manage $12 billion of emerging-market debt at Stone Harbor in New York.
“It’s a little bit easier right now to buy Argentina because it has less political noise tacked on to it than Venezuela has,” Craige said.
Chavez said on July 20 the government will obtain a minority stake in opposition television station network Globovision after seizing more than 20 companies held by one of the network’s owners during the past month.
Credit Suisse maintained “overweight” recommendations for both Argentina and Venezuela in a monthly debt strategy report released last week.
“We expect only gradual tightening of Venezuelan spreads to Argentina,” Arsenin wrote in the report. “And Venezuela is likely to outperform only in a global risk-on environment.”
To contact the reporter on this story: Drew Benson in Buenos Aires at This e-mail address is being protected from spambots. You need JavaScript enabled to view it ;
Source: http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=am_PLw8iYkbM
