Argentina bonds plumb record lows as market warning lights flash

BUENOS AIRES — Argentina bond prices sunk to record lows on Monday, weighed down by default fears linked to a wider emerging market sell-off, spiraling inflation pushing up interest rates and the prospect of a weakening economic recovery.

As investors pulled out funds, an index of over-the-counter sovereign bonds fell around 2%, extending a recent sharp decline. The Monday fall took 2030, 2028 and 2041 bonds to record low levels since a major debt restructuring in late 2020.

The country’s S&P Merval stock index fell 1.35% and a country risk index, reflecting default risks, scraped its highest level in over 18 months.

Investors are worried that higher global inflation will cause central banks to raise interest rates, affecting economic growth. Argentina’s central bank may raise rates this week to help tame inflation heading towards 70%.

“The walls are closing around the government. It was expected that these problems would be more visible next year, but the markets are getting there faster,” said Daniel Artana, chief economist of the FIEL Foundation.

Argentina has restructured around $110 billion in private debts and some $45 billion in loans with the International Monetary Fund (IMF) in the last two years, but some fear it could default again if growth does not pick up.

It needs to rebuild reserves of foreign currency as part of targets agreed with the IMF, but this has proved tricky with high energy prices pushing up its gas import costs, offsetting strong prices it is getting for its grains exports.

With some inflation-indexed local currency bonds coming under pressure, the government has been forced on the defensive over default risks.

“As for the barbarity of defaulting debt in pesos: our government would never do that,” Economy Minister Martin Guzman said in a tweet.

New York markets suffered a disastrous Monday overall due to signs of more inflation in the United States, expectations of more aggressive rate hikes from the Federal Reserve and fears of an economic recession.

(Reporting by Walter Bianchi and Jorge Otala; Writing by Adam Jourdan; Editing by Lisa Shumaker)