Argentine risk spreads on Monday shot to levels not seen since 2005 and sovereign bond prices fell 7.5%, as the coronavirus slammed global markets and the cash-strapped country prepared to restructure debt.
Bruised by recession, high inflation and an anemic peso, Argentina is one of the world’s riskier plays. So it was high on the list of countries to get pounded after the fast-spreading coronavirus and a plunge in global oil prices gutted major stock markets.
“We are seeing a panic,” said Gabriel Zelpo, director of Buenos Aires economic consultancy Seido.
“It’s the oil price shock on top of the coronavirus shock, and there is no certainty about the magnitude of the crisis and how it will affect companies,” he said. “Markets are in a defensive position, moving away from any risky assets, and we are one of the riskiest.”
The government says it has about US$ 100 billion in unsustainable debt, US$ 44 billion of which is owed to the International Monetary Fund.
Argentina’s portion of the JP Morgan Emerging Markets Bond Index Plus widened 342 basis points to 2,768 over safe-haven U.S. Treasury paper on Monday. The last time the country’s risk spread widened so much was in 2005, when it set out to restructure bonds it had defaulted on three years earlier.
The local Merval stock index fell 12.3% as the peso slipped 1.9% on the black market to 79 per U.S. dollar, an all-time low. The formal currency rate, propped up by central bank interventions, closed flat on the day at 62.5 to the greenback.
Traders said the bank sold up to US$ 100 million in reserves to prop up the peso on Monday alone.
The global downturn was expected to hit the already battered Argentine economy through an expected deterioration of trade flows and a fall in tourism to Argentine destinations like capital city Buenos Aires and Patagonia.
Earlier on Monday the Dow Jones Industrials crashed 2,000 points following a 22% slump in oil prices. Trading on U.S. stock exchanges was halted after opening on Monday, as the S&P 500 fell 7%, triggering an automatic 15-minute cutout.