Argentina's very unusual bond market

Context: Local debt is riskier. The U.S. government can print money while the city of Detroit, or the state of Illinois, cannot. That's why the U.S. government borrows at much lower rates than Detroit or Illinois.

• The same is true for nearly all the countries in the world. Countries can bail out cities and other sub-national entities, but if the country itself runs into trouble, it simply taxes those entities to raise the necessary funds.

Argentina is the exception to the rule. As Nick Dunbar of Risky Finance explains, some Argentine local governments, like the city of Buenos Aires or the province of Neuquén, are considered less likely to default than the sovereign. As a result, their bonds trade at significantly higher prices than the equivalent sovereign bonds do.

• By the numbers: Argentina's sovereign bonds generally trade at around 50 cents on the dollar. The debt of Mendoza Province, by contrast, trades around 75 cents, while Neuquén trades at 85 cents. And the bonds of the city of Buenos Aires trade at 99 cents on the dollar.

The bottom line: Creditworthiness is a function of the debtor's ability and willingness to pay. In Argentina, both of those things can sometimes be found more at the regional level than within the national government.

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