Argentina prepares return to market after 15 years

Deal would be largest and most anticipated sale of emerging market debt so far this year
Appetite for Argentine sovereign bonds
The image of President Obama held in a clinch by an Argentine tango dancer during his tour of Latin America has gone viral at just the right time for emerging markets.
In the next few weeks, Argentina is planning the largest and most anticipated sale of emerging market debt so far this year, and pictures of the US president in Buenos Aires will help to sell the story of a country resetting its relationship with the international capital markets after 15 years in the cold.
Who would buy bonds issued by a serial defaulter with a sizeable budget deficit and nagging inflation worries? Everyone, apparently.
After a shaky start to the year, markets are in resolute “risk-on” mode, which makes warnings of global investors losing interest in developing economies as the result of a strengthening US dollar, falling oil prices and China’s slowdown look premature.
Since the beginning of March, the MSCI Emerging Market index has gained 9.8 per cent, compared with 5.2 per cent for the MSCI World index, while the premium demanded by investors to hold emerging market bonds over supposedly safer debt has narrowed.
In total, the Washington-based Institute of International Finance calculates that overseas investors have poured close to $37bn into developing world stocks and bonds this month, the highest sum in almost two years.
Never mind that Argentina has defaulted eight times since independence; the country’s new market-friendly government has secured a deal with holdout creditors and emerging markets are rallying. The benchmark equity index is up more than 10 per cent this year while prices for existing bonds have jumped. The opportunity for a blockbuster bond sale in emerging markets has not been this attainable all year.
But there’s a catch. Pimco, the world’s largest bond manager, puts the rally in emerging markets down to three Cs: China, commodities and central banks.
As markets shake off the Easter lull, investors are focused on the next rate rise in the US.
Emerging markets may have breathed a sigh of relief on Tuesday as Federal Reserve chair Janet Yellen made the case for a slow rate rise, but if she changes her tune, then the rally — and Argentina’s hopes of an easy debt sale — could come to an abrupt end. Eye-catching photographs of Obama can’t compete with signals from Yellen.