Jan 30, 2020 - Economy & Business

Argentina's very unusual bond market

Source: Risky Finance; Chart: Axios Visuals

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.

Go deeper: Trump says he will restore steel and aluminum tariffs against Brazil and Argentina

Go deeper

Mexico’s unorthodox, left-wing president has made investors a fortune

Illustration: Aïda Amer/Axios. Photo: Pedro Martin Gonzalez Castillo/Getty Contributor

Under socialist President Andrés Manuel López Obrador, referred to as the "Bernie Sanders" of Mexico during his campaign, the country's assets have been "a virtual cash register" for investors.

State of play: While many have been skittish about embracing the controversial and unorthodox new president, during his tenure AMLO has made it rain on financial markets, boosting bond prices and pumping the value of the Mexican peso.

Gentlemen (and ladies) prefer bonds

Illustration: Aïda Amer/Axios. Photo: Sunset Boulevard/Getty Contributor

After pouring record inflows into bond funds last year, investors are doing so at an even faster pace in 2020 — pushing 10 times more money into bonds than stocks.

By the numbers: More than $65 billion has flowed into bond funds this year, according to Lipper Refinitiv data provided to Axios, outpacing inflows through 2019's record pace when bond funds took in $316 billion.

Foreign governments continue to shun U.S. government debt

Illustration: Aïda Amer/Axios

Foreign private buyers continue to pile onto U.S. government debt while foreign governments again pulled money out, led by China.

What it means: The U.S. Treasury International Capital Report showed a net inflow of $78.2 billion — $134.2 billion of foreign private inflows and net foreign official outflows of $56 billion.