LONDON/BUENOS AIRES (Reuters) – Argentina’s battered bonds were driven still lower on Friday after a credit rating cut from Standard & Poor’s triggered automatic selling mechanisms at major pension funds.
Risk spreads blew out to levels not seen since 2005 while the local peso currency extended its year-to-date swoon to 36%.
S - P - Global - Argentina - Rating
S&P Global slashed Argentina’s rating to CCC- into the deepest area of junk debt, saying a plan announced on Wednesday by the country’s government to “unilaterally” extend maturities of many of its bonds had triggered a brief default.
Importantly, it also took the average rating between the big three rating firms – S&P, Moody’s and Fitch – down to CCC. For many big German institutions that level is classed as too risky to hold under Versicherungsaufsichtsgesetz or VAG rules.
Argentina - Bonds - Cents - Version - Cents
It saw Argentina’s 2033 euro-denominated bonds slump 4.7 cents and a 2027 version drop nearly 2 cents . The peso opened 1.86% weaker at 59 to the U.S. dollar, extending losses over the last three weeks to 23%. So far this year the peso has weakened 36% against the greenback.
“A CCC rating is actually more meaningful than a default (rating),” Aberdeen Standard’s head of emerging market sovereign debt Edwin Gutierrez said.
Pension - Funds - CCC - Trigger - Selling
“German pension funds can’t hold CCC so that is actually the bigger trigger for selling,” he said, adding that its rules weren’t as strict on default-stricken bonds.
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