Debt investors should be a little nervous that Argentina received such a warm welcome back to the world’s debt market this week.
The South American country, which was returning to global capital markets for the first time since its 2001 default, easily sold $16.5 billion of bonds, the biggest one-day issuance of a developing nation on record. It could’ve probably sold twice that amount. It certainly got good rates, which were lower than similarly rated debt.
The sale was so successful that other developing nations are lining up to get a piece of the frenzied investor interest.
Here’s the problem: A lot of this demand is being driven by a broad-based desire for higher-yielding sovereign debt without much analysis about the specific countries seeking money. Investors who measure their performance relative to benchmark indexes bought Argentina’s bonds in anticipation of their inclusion in those gauges, according to a Bloomberg News article by Carolina Millan and Katia Porzecanski.
‘If you get it wrong, that’s a huge performance gap,’ Jean-Dominique Butikofer said in the article. ‘It’s like poker. Sometimes you have to pay up, even if you think you might lose,’ said Butikofer, who oversees $3 billion in debt as head of emerging markets at Voya Investment Management in Atlanta.
This post was published at David Stockmans Contra Corner on April 21, 2016.
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