The fear that Argentina will add a new moratorium to its long list of defaults grew on Tuesday, while investors continued to assimilate the hard defeat of President Mauricio Macri in the primary elections of the weekend.
Financial graph seen from the screen of a laptop. Reference Image / Pixabay
Reuters | Tom Arnold y Marc Jones
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The credit default swaps (CDS) prices of Argentina's five-year debt totaled 2,116 basis points, an increase from what was already a maximum of five years of 1,994 basis points on Monday. At those levels, the probability of a default within five years is estimated at between 70% and 75%.
The last time Argentina failed to pay its debt was in 2001, an event that generated years of recession and economic crisis.
Claudio Irigoyen, of Bank of America Merrill Lynch and who was also chief economist of the Argentine Central Bank, also warned of a deterioration of the outlook.
Analysts are not only worried about the economic plans of Alberto Fernández, the moderate Peronist candidate who won the victory in Sunday's primaries, but also about what a transition of power will be like.
"I think the economy will fall further, contracting 2% this year with inflation moving to 50%," Irigoyen said in a note. "And next year ... the probability of a moratorium will scale to 50% at least."
Fernandez has said he would seek to revisit Argentina's standby agreement for $ 57 billion with the International Monetary Fund (IMF) if he wins the general election in October.
The fall of local markets on Monday was brutal. The peso lost 15 percent of its value and the stock market sank 48 percent in dollar terms, the second-largest daily decline since 1950. In the debt market, a 100-year bond issued with a lot of rumbles two years ago lost a 20 percent.
Even when the markets have not assimilated a total default, operators are betting on a huge blow to the country's sovereign rating as a minimum.
An S&P model that uses CDS price data shows at least that the rating will go down four steps from B to CCC-.
"Sell or not sell?" Morgan Stanley asked in a note to customers about Argentine bonds.