Bloomberg is reporting Argentina Default Looms as Pension Funds Seizure Roils Markets

Argentina’s planned seizure of $29 billion of private pension funds stoked concern the nation is headed for its second default in a decade.

Investors say President Cristina Fernandez de Kirchner’s decision may further hurt markets already reeling from slumping commodity prices and slower growth. The retirement system, set up in 1994 to help bolster capital markets, owns about 5 percent of companies listed on the Buenos Aires stock exchange and 27 percent of shares available for public trading, data compiled by pension funds show.

Argentine bond yields soared above 24 percent before the announcement late yesterday, and the benchmark Merval stock index tumbled 11 percent. The last time the government sought to tap workers’ savings to help finance debt payments was in 2001, just before it stopped servicing $95 billion of obligations.

“It’s the final of many nails in the coffin from an institutional investor perspective,” Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London. Argentina is “disappearing into irrelevance.”

Bond markets also have tumbled. Yields on the government’s 8.28 percent bonds due in 2033 have almost tripled to 24.69 percent from 8.83 percent a year ago.

Double Default

Additional information on the bleak situation in Argentina can be found in Argentine Bonds, Stocks Tumble on Pension Fund Takeover Plan.

“It’s horrible,” said Jaime Valdivia, who manages $1 billion of assets for Emerging Sovereign Group in New York. “We’re going back to the dark ages. Not even in times of the worst financial stress did the government ever think about taking over the private pension system.”

Argentina defaulted on its bonds in 2001, offering investors 30 cents on the dollar in 2005. Some investors refused and are still haggling over it. Seems like they should have taken the 30 cents and run. Here we are again, with Argentine bonds trading at 30 cents on the dollar. Only this time, that 30 cents is before default.

Mike “Mish” Shedlock
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