Bonds set to advance as Argentina ‘comes clean’ on inflation
February 14, 2014 11:27 am
Argentine bonds will possibly continue this month’s largest advance in emerging markets after the government revealed a new inflation index that’s the most concrete indication so far that it’s ready to move away from policies that have alienated investors for more than a decade.
Consumer financial values bolstered 3.7 percent in January from a month earlier, the most since 2002, when compared to the previous series that was limited to Greater Buenos Aires, Economy Minister Axel Kicillof said yesterday. Argentine bonds have returned 8.06 percent this month, the most among emerging markets, pushing the extra yield investors demand to own Argentine bonds instead of U.S. Treasuries to 970 basis points, according to JPMorgan Chase & Co.’s EMBIG index.
“Argentina finally comes clean and prints a monster month-on-month inflation figure in compliance with the IMF,” Donato Guarino, a strategist at Barclays Plc said in e-mailed comments. “In this case, bad news is good news. A bad inflation number that will trigger a rally.”
Argentina has reported inflation numbers far less compare to private projection since 2007 when then President Nestor Kirchner overhauled staff at the National Statistics Institute, an action that provoked the International Monetary Fund to censure the country for publishing inaccurate information. According to the government, consumer prices skyrocketed 10.9 percent in 2013, less than half the 28 percent surge computed by private economists and published by opposition lawmakers.
The IMF said yesterday it had taken note of the new index and will review Argentina’s case by mid-May at the latest, according to deadlines it published in December.
New ‘X-Ray’
The new gauge covers more than 200,000 prices in 13,000 urban areas of the country, Kicillof said at a news conference in Buenos Aires.
“This marks a qualitative change from the past,” Kicillof said. Due to changes in consumption habits, “it was urgent for us to change our inflation calculations. This is an X-ray of another country.”
Opposition lawmakers said at a February 12 news conference that prices rose 4.6 percent in January and 30.8 percent in the past 12 months. According to the government’s new index, the rise in prices was led by health care, transport, entertainment and food, which rose 5.9 percent, 5.4 percent, 4.8 percent and 3.3 percent respectively.
The government didn’t publish an annual inflation rate.
President Cristina Fernandez de Kirchner devalued the peso 19 percent in January in a bid to make exports more competitive and to stem dollar demand that drained foreign reserves to a seven-year low.
IMF Approval
Locked out of international debt markets since the country’s record $95 billion default in 2001, the government is seeking to repair relations with the IMF, World Bank and the Paris Club of creditors to access new financing.
“This was a positive step forward,” Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc., said in an e-mail. “The number came in the upper end of expectations.”
Argentina needs IMF approval to advance in negotiations to settle $6.5 billion of outstanding debt with the Paris Club of creditors. Kicillof, who traveled to Paris last month to meet officials representing the 19-country group, said Jan. 21 that an eventual agreement could help companies that are blocked from obtaining credit abroad.
Argentina’s dollar-denominated bonds rallied in late trading yesterday with notes due 2033 advancing 0.93 cent on the dollar to 68.75 cents, pushing yields down 20 basis points to 13.14 percent. The country’s benchmark 2017 global bonds rose 0.47 cent on the dollar to 81.56 cents.
Workers’ Claims
Rapprochement with the Fund may also help improve ties with the U.S. and boost Argentina’s chances of having its case against holders of defaulted bonds heard by the U.S. Supreme Court, Eurasia Group’s Daniel Kerner wrote in a note to clients February 10.
The official consumer price index has been disregarded as a parameter by workers negotiating raises. Wages have risen an average 24 percent annually over the past seven years, compared with average annual inflation of 9.4 percent.
A union representing workers employed by the state, including the Economy Ministry, is demanding a pay rise of 35 percent, according to a poster on the wall inside the ministry.
Police officers in Cordoba, Argentina’s second-largest city, went on strike in December and only agreed to resume their duties after a 33 percent wage increase. Their absence from the streets sparked looting in which at least two people died. The strikes spread to other provinces, leaving at least six more people dead.
IMF ‘Dictatorship’
Former Interior Commerce Secretary Guillermo Moreno in 2011 fined private consulting firms that published inflation estimates that contradicted government data. To protect the economists, opposition lawmakers began publishing their surveys without naming them.
Relations between the IMF and Argentina deteriorated after the 2001 default. Nestor Kirchner, Fernandez’s predecessor and late husband, blamed the IMF “dictatorship” for leading the country into an economic crisis that culminated in the halt of payments.
Since canceling its $9.8 billion of debt to the IMF in 2006, the government hasn’t allowed the fund to conduct an article IV review of its finances, as it does in other member countries.
‘Intense Dialogue’
IMF Managing Director Christine Lagarde said in an interview with CNN en Espanol on November 10 that progress was being made with Argentina and she hoped the nation would deliver on its commitment to improve its statistics reporting.
The IMF had a “very intense dialogue” with Argentine officials last year and was able to ask many questions about the new index, Alejandro Werner, director of the IMF’s Western Hemisphere Department, said November 14.
The number reported by the new index adds to other measures such as persuading farmers to sell their stock of soy that has been seen as positive by the market, said Hernan Yellati, the head of research at BancTrust & Co.
“The credibility that was lost after lying since 2007 won’t be won over with a single number but the first number does makes sense,” Yellati said by telephone. “It’s a good sign.”
The material has been provided by InstaForex Company – www.instaforex.com
Argentine bonds will possibly continue this month’s largest advance in emerging markets after the government revealed a new inflation index that’s the most concrete indication so far that it’s ready to move away from policies that have alienated investors for more than a decade.
Consumer financial values bolstered 3.7 percent in January from a month earlier, the most since 2002, when compared to the previous series that was limited to Greater Buenos Aires, Economy Minister Axel Kicillof said yesterday. Argentine bonds have returned 8.06 percent this month, the most among emerging markets, pushing the extra yield investors demand to own Argentine bonds instead of U.S. Treasuries to 970 basis points, according to JPMorgan Chase & Co.’s EMBIG index.
“Argentina finally comes clean and prints a monster month-on-month inflation figure in compliance with the IMF,” Donato Guarino, a strategist at Barclays Plc said in e-mailed comments. “In this case, bad news is good news. A bad inflation number that will trigger a rally.”
Argentina has reported inflation numbers far less compare to private projection since 2007 when then President Nestor Kirchner overhauled staff at the National Statistics Institute, an action that provoked the International Monetary Fund to censure the country for publishing inaccurate information. According to the government, consumer prices skyrocketed 10.9 percent in 2013, less than half the 28 percent surge computed by private economists and published by opposition lawmakers.
The IMF said yesterday it had taken note of the new index and will review Argentina’s case by mid-May at the latest, according to deadlines it published in December.
New ‘X-Ray’
The new gauge covers more than 200,000 prices in 13,000 urban areas of the country, Kicillof said at a news conference in Buenos Aires.
“This marks a qualitative change from the past,” Kicillof said. Due to changes in consumption habits, “it was urgent for us to change our inflation calculations. This is an X-ray of another country.”
Opposition lawmakers said at a February 12 news conference that prices rose 4.6 percent in January and 30.8 percent in the past 12 months. According to the government’s new index, the rise in prices was led by health care, transport, entertainment and food, which rose 5.9 percent, 5.4 percent, 4.8 percent and 3.3 percent respectively.
The government didn’t publish an annual inflation rate.
President Cristina Fernandez de Kirchner devalued the peso 19 percent in January in a bid to make exports more competitive and to stem dollar demand that drained foreign reserves to a seven-year low.
IMF Approval
Locked out of international debt markets since the country’s record $95 billion default in 2001, the government is seeking to repair relations with the IMF, World Bank and the Paris Club of creditors to access new financing.
“This was a positive step forward,” Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc., said in an e-mail. “The number came in the upper end of expectations.”
Argentina needs IMF approval to advance in negotiations to settle $6.5 billion of outstanding debt with the Paris Club of creditors. Kicillof, who traveled to Paris last month to meet officials representing the 19-country group, said Jan. 21 that an eventual agreement could help companies that are blocked from obtaining credit abroad.
Argentina’s dollar-denominated bonds rallied in late trading yesterday with notes due 2033 advancing 0.93 cent on the dollar to 68.75 cents, pushing yields down 20 basis points to 13.14 percent. The country’s benchmark 2017 global bonds rose 0.47 cent on the dollar to 81.56 cents.
Workers’ Claims
Rapprochement with the Fund may also help improve ties with the U.S. and boost Argentina’s chances of having its case against holders of defaulted bonds heard by the U.S. Supreme Court, Eurasia Group’s Daniel Kerner wrote in a note to clients February 10.
The official consumer price index has been disregarded as a parameter by workers negotiating raises. Wages have risen an average 24 percent annually over the past seven years, compared with average annual inflation of 9.4 percent.
A union representing workers employed by the state, including the Economy Ministry, is demanding a pay rise of 35 percent, according to a poster on the wall inside the ministry.
Police officers in Cordoba, Argentina’s second-largest city, went on strike in December and only agreed to resume their duties after a 33 percent wage increase. Their absence from the streets sparked looting in which at least two people died. The strikes spread to other provinces, leaving at least six more people dead.
IMF ‘Dictatorship’
Former Interior Commerce Secretary Guillermo Moreno in 2011 fined private consulting firms that published inflation estimates that contradicted government data. To protect the economists, opposition lawmakers began publishing their surveys without naming them.
Relations between the IMF and Argentina deteriorated after the 2001 default. Nestor Kirchner, Fernandez’s predecessor and late husband, blamed the IMF “dictatorship” for leading the country into an economic crisis that culminated in the halt of payments.
Since canceling its $9.8 billion of debt to the IMF in 2006, the government hasn’t allowed the fund to conduct an article IV review of its finances, as it does in other member countries.
‘Intense Dialogue’
IMF Managing Director Christine Lagarde said in an interview with CNN en Espanol on November 10 that progress was being made with Argentina and she hoped the nation would deliver on its commitment to improve its statistics reporting.
The IMF had a “very intense dialogue” with Argentine officials last year and was able to ask many questions about the new index, Alejandro Werner, director of the IMF’s Western Hemisphere Department, said November 14.
The number reported by the new index adds to other measures such as persuading farmers to sell their stock of soy that has been seen as positive by the market, said Hernan Yellati, the head of research at BancTrust & Co.
“The credibility that was lost after lying since 2007 won’t be won over with a single number but the first number does makes sense,” Yellati said by telephone. “It’s a good sign.”
The material has been provided by InstaForex Company – www.instaforex.com
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