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Argentina Sells 100-Year Bond as Confidence Builds After Default

Charlie Devereux and Ben Bartenstein

(Bloomberg) -- Argentina sold 100-year bonds barely a year after settling a protracted legal dispute tied to a $95 billion default.

With the $2.75 billion sale, the government of South America’s second-largest economy joins Mexico, Ireland and the U.K. in issuing debt that matures over a century, which is often particularly attractive to insurers and pension funds seeking to lock in long-term returns. Argentina, for its part, is taking advantage of historically low borrowing costs to finance the budget and pay off debt that’s maturing in the next few years.

Argentina has staged a spectacular turnaround in the capital markets just a year after ending its long-running dispute with creditors over its 2001 default, issuing a then-record amount of debt for an emerging-market country and posting better-than-average gains over the past 12 months. Its debt now yields an average of about 4 percentage points more than similar-maturity U.S. Treasuries, less than one-third the level of just four years ago.

“Good for them,” said Michael Roche, a New York-based fixed-income strategist at Seaport Global Holdings LLC, who recommends buying the century bonds. “Spreads are low and looking stalled, so they should lock them in for as long as possible.”

Investors React to Argentina’s Debut 100-Year Bond Sale

The notes sold at 90 cents on the dollar to yield 7.917 percent, according to a person with knowledge of the matter, who asked not to be identified because the deal is private. Citigroup Inc. and HSBC Holdings Plc managed the sale. 

The government was able to sell the bonds because it regained “the world’s credibility and its confidence in Argentina and the future of our economy,” Finance Minister Luis Caputo said in a statement.

Yields on Argentine government notes rose, with the average spread over U.S. Treasuries widening 6 basis points to 4.12 percentage points, according to JPMorgan Chase & Co. data.

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The country is benefiting from strong demand for higher-yielding bonds amid suppressed interest rates in the developed world, according to Guido Chamorro, a senior investment manager at Pictet Asset Management Limited in London. Selling such a long maturity may be part of a marketing strategy to garner attention, Chamorro said.

“This is about free advertising. It gets you onto the front page of the Financial Times,” Chamorro said.

Argentina has defaulted on its debt seven times in the past 200 years and three times in the past 23 years. During negotiations that lasted more than a decade over defaulted bonds from the 2001 financial crisis, the government of then-President Cristina Fernandez de Kirchner exasperated U.S. Judge Thomas Griesa so much that he described Argentina as a “uniquely recalcitrant debtor.”

Before Monday, the government had issued about $7.5 billion of dollar and Swiss franc-bonds this year as part of a financing plan that has earmarked for $10 billion in foreign sales.

Some investors were concerned that the proposed yield on the new issuance was too low given how recently the country has defaulted.

“The market has a short memory,” said Victor Fu, the director of emerging-market sovereign strategy at Stifel Nicolaus & Co. “The deal itself doesn’t worry me, although the multi-year tight EM spreads are a bit concerning.”

--With assistance from Claire Boston

To contact the reporters on this story: Charlie Devereux in Buenos Aires at cdevereux3@bloomberg.net, Ben Bartenstein in Lima at bbartenstei3@bloomberg.net.

To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Brendan Walsh

©2017 Bloomberg L.P.