Commentary: Argentina’s $1 Billion Bond Buyback Plan Has Investors Stumped

Argentina’s plan to repurchase $1 billion of its deeply distressed dollar bonds has emerging-market investors scratching their heads, according to a Bloomberg News commentary. Economy Minister Sergio Massa announced the plan Wednesday to buy back securities maturing in 2029 and 2030 trading at 30-some cents on the dollar. The notes jumped to their highest prices in more than a year after Massa spoke, extending a rally that had already produced 60% returns for investors since October. While repurchasing the bonds at a fraction of their face value could ultimately save the country hundreds of millions of dollars in interest and principal payments, investors point out that the government doesn’t have very much room in central bank coffers to fund such a lavish buyback. Argentina’s long-standing financial woes are, of course, partly why the bonds were so cheap in the first place. The plan makes so little sense that the market gains may be short lived once investors sort through the details, according to Pablo Waldman, a senior strategist at Inviu in Buenos Aires. “There are very limited resources, and this is a very risky way of deploying them,” Waldman said. “If they don’t follow through with other measures, the very limited scope of this plan likely won’t cause bonds to rally further.” The announcement is all the more perplexing because while central bank reserves have climbed in recent months, net reserves are still dangerously low at just over $6 billion, according to local brokerage Portfolio Personal Inversiones. The nation is under pressure to bolster those reserves to comply with targets laid out in its $44 billion program with the International Monetary Fund, and it’s facing a severe drought that looks set to sap export dollars from flowing into the central bank later this year. Read more.