October 2, 2014
GDP bonds drop up to 53 percent
GDP-linked bonds in pesos dropped yesterday up to 53 percent while those in dollars and euros dropped up to 30 percent as a late reaction of the three percent expansion of last year’s Gross Domestic Product, a surprising number that was below the 3.22 percent mark that would have triggered about US$3.5 billion in payments to bond holders.
The GDP-linked bond in pesos TVPP, which had already decreased on Thursday 13.37 percent, dropped yesterday 53.42 percent, while the one in dollars TVPY dropped 28.24 percent and the one in euros TVPE dropped 30.58 percent. The other public bonds created with the 2005 debt swap decreased about two percent, followed by a 1.34 percent drop of the Boden 2015.
Even though drops on 63 of the leading companies, the Merval benchmark stock index gained yesterday 0.1 percent and closed at 6,198 points. Drops were headed by Pampa Energía (2.65 percent), Petrobras Argentina (1.49 percent) and Grupo Galícia (1.26 percent).
“The figure reported by the government had a harsh impact on the market but chances of a change on the GDP methodology were high. Even though the figures are not final, most of the investors don’t think the three percent can be exceeded when the final figures are published later this year,” Alejo Costa, trader at Puente Investment Bank, told the Herald.
Economy Minister Axel Kicillof said on Thursday the 2013 growth data was calculated using 2004 as the base year, rather than 1993, with the move once again inevitably stirring up debate in markets regarding the reliability of the country’s statistics. Recognizing lesser growth has thus come with an upside: saving substantially on debt repayment in a context of dwindling Central Bank foreign reserves.
“The market didn’t expect this to happen based on the current negotiation the government has with international agencies like the Paris Club. A payment and higher GDP figures would have been a positive signal for those negotiations,” Mauro Morelli, trader at Rava brokerage, told the Herald. “I don’t see the drop ending next week. The market will establish soon the price these bonds will now have.”
Argentina issued GDP warrants, payable if economic growth exceeds pre-set yearly levels, as part of debt restructurings that were negotiated in 2005 and 2010.