A Not So Subtle Hint That Argentina May Be Un-Fixed

Tyler Durden's picture

The Argentinian 2015 bonds are getting destroyed!!

They were trading near Par at year-end!!


With the IMF frantically scrambling to cover its forecast errors and model-breakdowns amid an emerging market turmoil that no one could have seen coming, the contagion is beginning to spread. With all eyes fixed on Turkey (unfixed again) or Ukraine (never fixed), Argentina's troubles are exploding. The last few days have seen yields on their 2017 bonds scream higher from 11% to 19%... and 2015 Boden prices collapse.

This is the worst in emerging market bonds and the price/yield is back at the lows/highs since October 2012. With the peso's dramatic 15% devaluation last week stabilized in the official rate around 8/USD, the blue-dollar rate is back at its worst around 12.80 implying more pain to come.

5Y CDS are trading 2700bps = +1000bps in 2014

These are 3-year maturity bonds!



As Bloomberg notes,

Argentina is losing foreign currency reserves at the fastest pace in more than a decade as estimated 28 percent inflation and currency controls spur capital flight. The funds, which the country relies on to pay debt and finance energy imports, dropped to a seven-year low of $28.3 billion. The government devalued the peso 15 percent last week and raised benchmark interest rates as much as 6 percentage points. The moves, coupled with less risk appetite for emerging market assets, haven’t settled investor concerns.


There is fear and panic about the emerging markets and the news has not been good out of Argentina with reserves dropping $250 million yesterday,” said Russell Dallen, the head trader at Caracas Capital.

Charts: Bloomberg

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_ConanTheLibertarian_'s picture

Nice (inverse) parabolic charts!

So Close's picture

28.3 billion divided by 250 million = 113.2 days.   When does the camels back break?

walküre's picture

Reminds me of 2008 when someone made a $750 million withdrawal from the money markets and "broke" the buck.

Here's what is odd. They have capital controls in Argentina. How can anyone individual or anyone group withdraw $250 million in one day? Even a collective of smaller withdrawals is unlikely.

The IMF is playing with them. All the EMs are playgrounds for the big boyz at the IMF and World Bank. They want blood from these unfortunate people in the EMs and they shall have it.

Before long, there will be revolutions and war as this is the only way out of the debt slavery. All priced in and well controlled by our overlords at the IMF and World Bank. Why aren't their offices being torched yet? Where is Al Quaeda when you need them? Too bad they don't really exist as such a group.

Sorry, Argentina and all the other EMs. Unless you give the Jews the finger and abandon their Dollar, you will never be free!

macholatte's picture

We know they love the Benny bucks. Does anybody in Argentina buy gold or silver?

Seems like purchases of PM's from down south would be quite brisk this time of year.

machineh's picture

You can buy gold coins in Argentina, but the bid/ask spreads are UGLY ... way wider than in competitive markets.

And the gold bars in Argentina are a different alloy than elsewhere, to discourage export or arbitrage.

Argentina is not gold-friendly.

AG BCN's picture

I work with an Argentinian girl, she escaped the 'Corralito' in 2001 to make a new life in Barcelona. She is eduacted in the traditional sense and from a good family, a good person. 

I asked her why the Argentinians don't buy gold to protect againt the devaluations, the question is met with a blank face

and a kind of 'I don't know'

I simply don't get what's going on down there. Is it just not possible? anyone? anyone? Bueller?  

machineh's picture

USD (hundreds) has been the safe harbor there since the 1970s.

Sure, the USD loses 2% in purchasing power annually. But that's almost invisible compared to 30% local inflation.

AG BCN's picture

Yup, got you on that one and I agree that the USD is God in Argentina. 

I'm just wornering when will the penny drop and why has it not already? after all it is ARGENTina.

Don't cry for me Marge and Tina. 


couvrot's picture

The only one withdrawing money from the Central bank is the Government to pay for oil and gas import for instance (over $10 billion a year!!!).

Wile-E-Coyote's picture

A bit like the Titanic shipping 5000 gallons a minute, the result is the same.

NoDebt's picture

Better question:  Why did they do a moon-shot starting in July to begin with??

Grande Tetons's picture

Taper fears volume 1. Check out the EDZ chart for that time period. 

NoDebt's picture

Yeah, EDZ ramped (up, because it's 3X bear fund) but then quickly faded after July.  Those bond prices just kept going up into year end.  86 to 100 is NOT a small move for a sovereign bond.  100 back down to 86 isn't either.

I dunno.  I guess... "How could it possibly matter at this point?"

Grande Tetons's picture

Bad example. IMO, EMS got punished in late summer due to taper speculation.  Argentina got a bad ride because they deserve a bad ride. Cleaner EM currencies like the Mexican peso held their shit together on a relative basis. 

If Janet untapers...I am going to have my buy finger on a few EM currency longs.

Grande Tetons's picture

It looks like they could use a MyRA. 

mayhem_korner's picture



I believe the official term for the pulling out of foreign investment is currencis interruptis.

101 years and counting's picture

luckily its friday, no realities dont matter in the financial stock "markets".

Son of Loki's picture

19% on a Gubmint Bond?


I'll grab some for My IRA ... put them in the drawer with my Greek bonds....

akak's picture

I still have some 1930s-era Polish government bonds that I inherited from my grandfather.  I can sell you some of them if you like --- I mean, Hell, they're as good as money in the bank!

pods's picture

Like a giant wave rolling around a tub, crushing emerging markets as the liquidity tsunami rolls in and out of countries, creating wild gyrations in demand for currency.

This is NOT going to end well.  A giant tidal wave where money rushes in, inflates things, then rushes out leaving everything high and dry.

And they say that gold is a barbarous relic.  Seems that is exponentially more humane than the poor schlep that is forced to deal with some two bit currency when the FED's tidal wave comes rolling in.

Gonna be raining Argentinian bankers soon.


Dr. Engali's picture

I'm going to declare myself a bank, and  when they are yielding 100% I'm buying. Old yeller can pay me par +1

dontgoforit's picture

Like a yo-yo with a long elastic string.....down, down, down - and once near the very bottom, it goes up, up, up......until the string, breaks.

Bryan's picture

They need more control from the central powers!  MOAR control!  more more more central control!  Print more money and control private businesses!  Hurry, before you lose your control on everyone and everything!!


freakin' Keynesians.

Rising Sun's picture

What do you think of this fucking mess now KRUGMAN!!!!!??????


Moar goobermint, right KRUGMAN!!!!?????

highly debtful's picture

As a head trader, "Caracas Capital" is not a company name I'd be particularly happy with these days.

akak's picture

Please, somebody, anybody from South America, answer this question which has been rolling around in my head for years now: given the consistent record over the past century or so of South American governments devaluing and depreciating their currencies, frequently disastrously in hyperinflation, how is it that EVERYONE in South America does not by now instinctively hold gold (and silver) as a means to avoid the loss of their savings via these almost predictable monetary machinations, when by all indications virtually NONE of them do, or ever have? 

Just how many times do you people have to learn the same hard lesson over and over before you 'get it'?

Tinky's picture

Apparently you are unfamiliar with the potent restorative powers of a late night feast, lubricated with multiple bottles of Malbec.

machineh's picture

Argentines use US dollars (fresh hundreds) as a savings vehicle. Banks have safe deposit boxes stuffed with USD (risking gov't confiscation, but the locals are more worried about home invasions).

Gold in LatAm has a wide bid/ask spread, whereas the USD/ARS informal market is liquid, convenient and has reasonably tight spreads.

So USD is preferred for liquidity reasons.

brunoaa's picture

It is  a little more complicated than that.

In Hyperinflationary Brazil Dollar was as good a protection as gold, but over the long run the real interest rate paid by the central bank was so high (reaching up to inflation + 30% at times), that you were better off with money in the bank or inflation indexed securities.

As an illustration,  your best protection against the Collor Plan in Feb 1990 when inflation reached 70 % was cash in your hand (because this plan created a deflationary shock which cancelled nearly all liquidity and sent gold/USD down 50% in local currency term) and debentures in local currencies indexed on inflation which in March 1990 went up by some 70 % (yes 70%) when gold dropped 50%.

That is my take as ex finance director of several of the largest public traded Brazilian companies in the 80s/90s.

Pheonyte's picture

So, would I be correct in thinking that a similar scenario cannot play itself out in the US, given the debt level? If there were a real interest rate greater than, or even equal to, the rate of inflation, that would bring down the house.

Rafferty's picture

Have wondered the same thing, Just don't get it.  And Argentina isn't like Brazil with a vast Mestizo underclass.  It's population is ethnically about 40% Italian and 30% Spanish.  Maybe  just answered my own question.........

toadold's picture

Argentina periodically defaults on it's debts.  The only thing only thing dumber than the Peronistas who are the majority of the populaceI are the fools that lend them money and expect to get it back. 

I rmember reading of a British bank of the Victorian era that broke it self on Argeentine Rail Road Bonds.  Nothing much seems to have changed except that it happens faster. 

Harbanger's picture

I think they actually paid back the IMF in 2006. But they can't sustain their system. they have very little banking reserves.  They have no reserves because they have no economy, they have no economy because they are run by a socialist gov that despises private business.  So even if they "gullitined the bankers" and nationalized their central bank like Venezuela, it wouldn't make a lick of difference.

AustrianJim's picture

Relax. There's a coup on the way, and then they'll attack the Falklands. Then Peronism will finally work.

macholatte's picture


and then they'll attack the Falklands



DblAjent's picture

I have pondered traveling to BA with $9999 USD, selling them for up to 10:1, wiring half to an off shore and traveling back with the rest (approx. $9800 USD in Pesos after a night of a fine Cab with a senorita).

machineh's picture

All good except for the 'wiring out' bit, which is impossible due to capital controls.

You would have to carry your USD cash out to another country, such as Uruguay.

But if you're holding a U.S. passport, you will not be welcome at LatAm banks, thanks to FATCA. They will smile and show you the door.

LatAm has the same AML regime as elsewhere, so foreigners with wads of unexplained cash are shunned by banks.

DblAjent's picture

Damn! Guess I'll have to bring the Mrs. to carry the other half and share the Cab with her...

NoTTD's picture

What the hell is a "Boden"?  Hobbit name?

Gromit's picture

Lovely day in Buenos Aires. Maybe a lttle on the warm side, time for my siesta I think.

Visited my cueva this mornng - changed at 12.35. Now I need to spend those Pesos before the shops put their prices up again.

Just accepted delivery of a lovely italian cashmere and wool wrap for my novia. (10,700 Pesos ARS). Early tomorrow I'll be out and about buying clothes for a party in the evening (I always bring throwaway clothes soI have space in my suitcases for new stuff and igfts.)

Please don't worry about Argentina all will be fine.  Whatever ails the rest of EM (supposedly reducing QE ets.) s irrelevant to Argentina whose problems are entirely self inflicted. I think I'll buy a few more BODENs

People here are happy, of course the taxistas bitch and moan but most everybody is enjoying their lives here, frankly they are alot happier than folks stateside.




Flakmeister's picture

I'll say it again...

No small part of what is happening in Argentina is because of this:


Argentina is becoming a net oil importer after years of exports (and the attendant hard currency)....

Compare the Argentinian exports with that of Egypt


and then remind us of when the wheels came off of the Mubarak regime....

BobRocket's picture

Why did Argentinas' oil consumption start to ramp up after 2002 ? The consumption in Egypt rises in an almost straight line.


Did no one see it coming and try to reduce consumption along with investments in increasing production and alternatives ?