JP Morgan, more optimistic on Argentine bonds
Tuesday, August 6, 2013
• Bets that the litigation in New York will be prolonged
• Believes that the Supreme Court could take the case
JP Morgan announced an improvement in the pondering of Argentine debt within the portfolio of emerging markets. The American bank upgraded Argentine bonds from a negative ("underweight") to neutral ("marketweight") rating. The decision to change the negative posture that it had adopted in January is basically explained by the view that the American Supreme Court could take up the case between Argentina and the vulture funds. As such, it would delay for even more time an underlying ruling in relation to the fate of Argentine debt with New York law, which will continue being paid as normal in the meantime. According to the JP Morgan paper, compiled by economists Vladimir Werning and Jonny Goulden, the "amicus curiae" filing from the French government went on to have a great relevance. It happens that such step would be key for the U.S. Supreme Court to analyze in October if it takes the Argentine case or not, first consulting with the U.S. government. Within this logic, the bank argues, “the decision by the U.S. government and the IMF to not file a brief supporting the Argentine posture is of a secondary importance.”
The bank also points out that the yield on Argentine debt continues to be the highest among all emerging bonds, even after the recovery shown by warrants in relation to the lows reached last March. “Investors have minimal positions in Argentine bonds, by which we believe the base for a recovery is quite solid,” they added. Argentine debt has shown since October of last year – but especially in recent weeks – a divergent behavior between warrants issued with Argentine law and those that with New York law. The former have been sustaining a very notable recovery, by which the yield is already at 350 basis points (3.5% annual) below the latter.
In the portfolio of emerging debt at JP Morgan, the bonds that carry an “overweight” rating, or a greater participation within investor portfolios, are the following: Venezuela, the Dominican Republic, Sri Lanka, Hungary, Mexico. In turn, those with the “underweight” category are debt paper from Zimbabwe, Ukraine, Serbia and Mongolia. Argentina, as such, would end up in the middle of both groups, making it neutral.