Currency exchange values are displayed on the buy-sell board of a bureau de change in Buenos Aires, on August 14 2019. Picture: AFP/JUAN MABROMATA
Currency exchange values are displayed on the buy-sell board of a bureau de change in Buenos Aires, on August 14 2019. Picture: AFP/JUAN MABROMATA

São Paulo/Mexico City — The dead-cat bounce has arrived for Argentina.

After a brutal three-day sell-off that saw average yields spike to 21% and an implied probability of default gauge surge above 80%, investors finally found prices cheap enough to begin taking risk in the battered credit.

The peso gained 3.2% on open in Buenos Aires on Thursday. The extra yield investors demand to own government debt over US treasuries narrowed 1.7 percentage points to 17.91, still the highest in emerging markets, while bonds jumped as much as 7%.

Still, average prices have fallen to between 47c and 57c this week as the market re-assessed the chances of repayment under a potential opposition administration.

While the political outlook after the upset in the primary election on August 11 that sparked the market carnage hasn’t changed much, some signs of cordiality emerged between President Mauricio Macri and his front-runner opponent Alberto Fernández.

Fernández, who took a commanding 15-point lead in the primary ahead of October 27 elections, spoke with Macri on Wednesday. An economist close to the leftist candidate vying to unseat the market-friendly administration also made encouraging comments about maintaining monetary policy, fiscal discipline and seeing the current exchange rate as being fair value.

Yong Zhu, who helps manage $10.8bn at DuPont Capital Management in Wilmington, Delaware, says that he will start gradually increasing his Argentine bond exposure heading into October’s election.

“The market is pricing a pretty significant risk of default in the near future,” said Zhu in an interview. “But I don’t think they’re going to default right away.”

Bloomberg