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Argentine debt rallies after stinging election loss
Reuters
June 29, 2009

By Herbert Lash

NEW YORK, June 29 (Reuters) - Argentina sovereign debt prices rallied strongly on Monday after the ruling party of Argentine President Cristina Fernandez suffered a stinging defeat in mid-term elections, suggesting she will have to compromise and perhaps drop her pursuit of populist policies.

In a humiliating loss, former President Nestor Kirchner, Fernandez's powerful husband and predecessor in office, was upset in a high-profile congressional race in Sunday's elections.

Argentina has been cut off from international capital markets since it defaulted on its $100 billion sovereign debt in 2002. The default set the country apart from neighboring Brazil, which has pursued more orthodox economic policies and is viewed more favorably by investors.

The result heightened political uncertainties in Latin America's No. 3 economy, potentially setting off a power struggle in the ruling Peronist party. [ID:nN29357339]

"We think the final outcome of the elections is very positive for sovereign bonds, positive for foreign direct investment and more or less neutral for the FX rate," said Alberto Bernal, head of emerging markets fixed-income research at Bulltick Capital Markets in Miami.

The Argentine peso will still depreciate because of capital flight, while the election result is neutral for equity markets, Bernal said.

Argentina's discount bonds ARGGLB33=RR were trading higher, up 3 points to bid 49.75. Argentine 2038 Par bonds ARGGLB38=RR were up 2.75 points in price to bid 26, yielding about 12.90 percent, according to Reuters data.

Argentina's credit default swaps were trading at 48 percent up front on Monday, unchanged from Friday, according to data from CMA DataVision.

"Basically everything is rallying," Bernal said. "What this means, the effect of the Kirchners' losing, is that they have to compromise if they're going to remain in power," he said.

Cabinet-level posts likely will be offered to the opposition or to a dissident faction within the Peronist party, Bernal said.

Fernandez and her husband are known for unpredictable moves, such as last year's surprise nationalization of the Argentina's pension system.

To be sure, the new Congress will not be seated until December. That will give Fernandez five months with a majority in both houses, which some economists and political analysts say she could use to increase state control over the economy. (Additional reporting by Daniel Bases and Dena Aubin; Editing by Padraic Cassidy)

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