Argentine Vote Slams U.S. Bond Funds -- Update
14 August 2019 - 5:59AM
Dow Jones News
By Matt Wirz
Yield-seeking investors everywhere are getting singed this week
by the meltdown in Argentina's markets following the victory of a
populist candidate in the South American nation's presidential
primary election.
Argentina's 8.75% dollar-denominated bond due in 2024 traded
Tuesday for about 45 cents on the dollar, down from 73 cents before
populist presidential candidate Alberto Fernandez soundly defeated
pro-business incumbent Mauricio Macri in a primary election on
Sunday, according to data from IHS Markit.
Falling bond prices have foisted heavy paper losses on the fund
managers that took outsize bets on the country's debt. Some large
mutual funds had invested more than 10% of their assets under
management in Argentine bonds, which lost about one-third of their
value in the past two trading days. Argentina comprised 2.3% of the
most widely tracked emerging-markets bond index managed by JPMorgan
Chase & Co. last week.
A $5.7 billion fund managed by T. Rowe Price Group Inc. held a
7.2% allocation to the country at the end of July, according to a
spokesman for the firm. T. Rowe increased its overweight position
in Argentina last year, betting that the market was overestimating
chances that Mr. Macri would lose re-election or that, if he did
lose, his replacement would certainly default on the country's
debts, said Ben Robins, a portfolio specialist at the firm.
"We now have a more cautious view," Mr. Robins said, adding that
T.Rowe is waiting to hear more from Mr. Fernandez about what his
approach to the country's debt would be. "I don't think he's said
anything definitive yet."
Fidelity Investments manages a $1.4 billion emerging-markets
fund that was 11.3% invested in Argentina as of June and an $8.6
billion fund that had a 6.35% allocation to the country in June,
while Ashmore Group PLC's $1.5 billion short-duration
emerging-markets fund was 10.5% invested in Argentina as of June,
according to data from Morningstar. A spokeswoman for Fidelity
declined to comment. Ashmore didn't immediately respond to request
for comment.
The price of derivatives that pay out if Argentina defaults more
than doubled this week, according to data from IHS Markit. The cost
of a credit-default swap protecting $10 million Argentine sovereign
bonds for five years jumped to about $4.4 million Tuesday from $1.8
million on Friday.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
August 13, 2019 15:44 ET (19:44 GMT)
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