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In a World Completely Numb to Risk: Argentina’s 7.9% 100-Year Bonds

Wolf Street  ( Original )
MAY 11, 2018

Argentina defaulting on debt is as regular an occurrence as the Olympics. If it seems like its been a while since it last happened, you can bet it's almost time again.

But in ZIRP world, investors are willing to take on insane risk for just a few extra points of interest. What other explanation can there be for the appetite for 7.9%-yielding 100-year Argentinian bonds last June?

Never mind that these bonds were immediately minted out of the smoldering rubble of Argentina's last default, the details of which were still being hashed out in 2016. One year later, a country that rarely goes double-digit years without a total economic meltdown was able to price 100-years at single-digit interest rates. That they are at risk of default less than one year later should surprise no one.

You just don’t lend Argentina’s government money. Not in its own currency, because it relentlessly destroys that currency, and not in a foreign currency, because it will default on it. Lending money to Argentina is like trying to run across a 16-lane freeway with traffic zooming by at 70 mph. You just don’t do it. You might get through it. But there’s a good chance it’s going to cost you, and perhaps dearly, and you shouldn’t be surprised if it does.

But just after Argentina settled with the “holdouts” in 2016 on defaulted dollar-bonds dating from its last default, it sold new foreign-currency bonds, in all kinds of issuances, including in June last year $2.75 billion of 100-year bonds at a yield of 7.9% and in January this year $9 billion of bonds, composed of five-year bonds at a yield of 4.625%, 10-year bonds at a yield of 6%, and 30-year bonds at a yield of 7%.

The Ministry of Finance said the yields of the bonds sold in January – however juicy they may have seemed to NIRP and ZIRP-mauled investors – were the lowest in Argentina’s history. It had received $21.4 billion in orders for those $9 billion of bonds.

But these eager investors were trying to cross the 16-lane freeway. And now they act surprised that they got hit so quickly and before they could get out of those bonds.

ORIGINAL SOURCE: As US Dollar & Interest Rates Rise, All Heck Breaks Loose in Emerging Market Currencies by Wolf Richter at Wolf Street on 5/10/18