On thin volume, shares of the Global X FTSE Argentina 20 ETF
(NYSE:
ARGT
) were off just about $0.01 on Monday. That is no small feat
given that Argentina, South America's third-largest economy, is
inching closer to its second sovereign debt default in the past
11 years.
A week ago, ARGT rallied even after
The Economist reported
Argentina was likely to default on its debt. At the time of that
report, the issue appeared to be not if the country would default
again, but simply whether it would engage in a selective or
technical default. Not transferring funds to pay so-called
holdout bondholders by December 2 would result in selective
default.
The other option, changing the terms on restructured debt and
transferring funds outside the jurisdiction of the U.S., would
force a technical default, The Economist reported.
At this point, another Argentine default appears to be a
matter of when, not if. Surging credit default swaps on the
country's debt say as much. Over the past three years, credit
default swaps used to protect against default on Argentine debt
traded between 500 and 1,500 basis points, implying a low
probability of default,
according to Risk Reversal
.
The high end of that range was seen earlier this year
following the country's nationalization of energy firm YPF S.A.
(NYSE:
YPF
). In April, credit default swaps on Argentine debt
surged to over 1,000 basis points
as yields on those bonds soared. The impact on ARGT was
predictable as the ETF faltered.
As Risk Reversal notes, swaps to protect five-year Argentine
bonds against default traded as high as 4,000 basis points today
before falling back to 3,000 basis points. Even with that
intraday retrenchment, some traders are saying the chances of
another Argentine default has essentially doubled in a matter of
weeks.
To its credit, ARGT is proving sturdy today. However, as the
risk of another Argentina default grows, it is unlikely the ETF
will be able to ignore that news. Already at risk of
losing its frontier market status
, ARGT is trading just pennies above its all-time lows. A run to
that ominous price level would almost certainly be hastened by an
official default.
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, click
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.
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