Archives for June 2017

Today’s “what the hey?” story:

Argentina sold $2.75 billion of a 100-year bond on Monday, just a year after emerging from its latest-default. You read it right: from its latest. Last year’s was the seventh time, since the country has defaulted on its bonds from the get-go:

ARGENTINA’S first bond, issued in 1824, was supposed to have a lifespan of 46 years. Less than four years later, the government defaulted.

The 100 yr bond??

“As a matter of record, Argentina has defaulted on its foreign currency debt seven times since independence 200 years ago, and five times on local debt, its longest stretch without default was ca. 50 years…. as they say somewhere ‘you do the math’!”

Argentina lacks an investment-grade rating (emphasis added)

The Argentinian economy recently failed to win back its status as an emerging market in the influential MSCI benchmark equity index posing a contrast to the success of the launch of its 100-year bond. The failure is a setback for President Maurico Macri who has implemented several market-friendly reforms to deliver on his promise of reforming the country’s economy after years of heavy intervention and non-payment of of international debt obligations under the previous government.

He ended a decade-long dispute with creditors that allowed it to re-enter global credit markets, but Argentina lacks an investment grade rating. S&P and Fitch rate the sovereign a B with a stable outlook, while Moody’s has the debt at B3, according to Reuters.

In other words, junk bonds.

The question is,

What can anyone owning their brand new 100-year Argentinean bond expect? A couple of defaults, at least one war, and probably a revolution as well. The chances of collecting your 8% every year through all that? Perhaps not quite zero — but surely something very close to it.

Quite frankly, I am baffled; there is no way the country can remain solvent for the next century.

Matthew Lyn calls is “a sure sign of a market gone crazy.”

It sure is.