dedalo

Are We Facing a New Wave of Sovereign Bond Defaults?

I personally hold Argentine inflation index bonds and, although I am aware of the inflation numbers being manipulated, it all comes down to how much the bonds are yielding, and at the current ultra discount prices, these bonds are returning over 20%, even when the official inflation is around 10%. What is being priced here is the (totally unrealistic) risk of default. Argentina is indeed, like Brazil, a commodities powerhouse. Unlike what happened in the 90s, when commodities where low, the country is now benefiting massively from the current commodities supercycle (which will not end any time soon), and has had a trade surplus for the last six years, export dollars flooding the country, and its currency getting stronger (in the last month it´s gained 5% against the dollar). Anyhow, thanks to delirious articles like the one on the WSJ and all the default-paranoia, it is now possible to buy these bonds at such a discount and get a great yield, plus the currency valuation.