There has been much speculation this year when it comes to the future of the Argentine economy. Many on wide side believe the country is heading towards another major financial crisis while many others believe it is just business as usual.
One of the major investment vehicles in the country is bonds, so what do they have to say about the state of the nation?
Let’s take a look at the development of the BODEN (Bonos Optativos del Estado Nacional) Elective Government Bonds, known by their acronym in Spanish, which are the dollar denominated bonds regulated entirely in Argentina and backed by the Argentine Central Bank.
BODEN RG12 was the bond series launched in 2002 after the financial crisis.
It carried a coupon payment of 12.50% and was being traded at a median performance of 17.99%, which was an adequate performance in relationship to the dividend payments. When the Government made their last payment in 2012 to investors, everyone praised it as a significant movement away from crisis. About 80% of investors were foreigners, and it surely gave them confidence about the future outlook of Argentina.
The next big test for the BODEN series will be the R015 expiring on October 3rd, 2015.
The bond has an average performance of 18% after the peso devaluation and it is causing concern in the markets, considering it carries a fixed coupon payment of 7% and a payment date just around the corner.
I will trust the bonds to give us more input this year in the upcoming state of the Argentine economy.
Argentina must make payments on the BODEN bonds in dollars, which in turn must come from the Central Bank reserves. Argentina uses these same reserves to resist downward pressure on the peso, and to pay for imported goods.
As the BODEN is a dollar-denominated instrument however, it demonstrates that contrary to common misrepresentation, Argentina can indeed access international capital markets, at least to some extent. Furthermore, the BODEN's consistent value and trading value over time shows that international investors and markets continue to seek exposure to Argentina.
Argentina has demonstrated both a commitment to and indeed the prioritization of honoring this commitment; however, their continued ability to do so will depend on the bond closing prices, as well as on reserve levels in the upcoming year.
*BODEN trends and statistics provided by www.puertofinanzas.com
Article by Jonathan Rivas, Managing Partner, DCDB Group