MercoPress. South Atlantic News Agency

Argentine bond spreads at their highest since 2005

Argentina's government bond spreads', which gauge investors' aversion to risk, widened sharply on Friday as confidence in the economic outlook and the political management of the country began to be questioned.

Argentina's spreads widened to 701 basis points over US Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus (EMBI+), the highest since 2005. Insistent rumors that Moody Investors Service was considering cutting Argentina's country debt rating raised further uncertainties. Argentina's underreporting of inflation, the purchase of bonds by Venezuela without clarity on price terms, the difficulties the country is likely to confront in 2009 financing and the lack of access to international markets have put pressure on credit conditions. However some analysts believe Moody's won't lower Argentina's debt rating which now stands at B3 since it would signal the country is about to default. Venezuelan President Hugo Chavez announced this week it had bought one billion US dollars in Argentine bonds but neither country provided more details. Argentina relies heavily on Venezuela for buying up the debt issued out of Buenos Aires because it remains shut out of international capital markets following the debt default of 2002. Traders also mentioned Argentina's Boden 15 bond, which has taken a significant hit in the last few days, saying Venezuela bought the paper recently just to "flip it to the banking sector in Venezuela, creating dangerous excess supply." Argentine-issued Boden paper was given to people who had frozen deposits in Argentine banks after the debt default. In addition, analysts said, the lack of transparency from the statistics agency INDEC and the continuous stand off between the government and the agricultural sector, which is standing firm on some issues it wants for small and medium size exporters have left the door open to further confrontation. Key energy data, social aid statistics, registrations of grains exports, and some income-distribution and salary figures have vanished from government Web sites, analysts said. The INDEC statistics agency is the most dramatic and best-known example of the problem. For 18 months some agency workers have protested what they call government manipulation of inflation, economic growth and poverty figures. While Indec reports annual inflation of 9.3% through June, private economists and consultants in Buenos Aires estimate the rate is closer to 30%. However President Cristina Fernandez de Kirchner has repeatedly said Indec inflation data is accurate.