PIMCO’s big bet to buy almost 33% of the world's top paying government bond had the rug pulled out from underneath it this week as Argentina's currency collapsed, according to Bloomberg.
The bonds have now fallen to 71 cents on the dollar from 104 cents last Friday and the debt matures next June. The notes have a floating coupon which is tied to the benchmark interest rate, which is now at an all-time high of 75%.
But the astronomical yield on the debt was counteracted by a swift fall in the peso after President Macri suffered defeat in the country's primaries.
PIMCO owns about 30% of the USD $2.4 billion worth of the 2020 bonds on issue. They had raised their stake in the bond earlier this year before Argentina reopened the bond sale.
PIMCO now says that it has diversified itself and added downside protection in the event of an "extreme market event". The company has also said that it has avoided larger exposures with greater losses that other major investors have run into.
And while nominal returns for the notes have been impressive of late, the country’s currency collapse - to the tune of 37% this year - has curbed real gains. A number of analysts still speculate that the peso has a long way to fall.
PIMCO's profit and loss is ultimately going to hinge on how the company has hedged itself. The company offered no comment to Bloomberg about its hedge.
The nation's benchmark rate was 26% when the debt was issued two years ago as the country was optimistic that its economy would be able to be resuscitated.
PIMCO was not alone in getting crushed by Argentina's sudden collapse. As we noted yesterday, Franklin Templeton's Global Bond Fund manager, Michael Hasenstab - the man who may have bought every single sovereign bond dip in history in hopes of being bailed out by central banks - was on Epsteinwatch, for the simple reason that this time a bailout was not forthcoming, resulting in unprecedented losses.