Recent events reinforce our view that there is more than a 50-50 chance of medium-term default on Argentine restructured sovereign debt. On November 21, Judge Thomas Griesa, acting at the direction of the US Second Circuit Court of Appeals, clarified his earlier ruling regarding Argentina’s practice of paying holders of restructured debt and ignoring investors who chose not to take the terms offered in 2005 and 2010 (the latter people are referred to as ‘holdouts’). The latest decision reaffirmed our view that Argentina will enter technical default, triggering credit default swap (CDS) payments. As a result, yields on Argentine sovereign debt have continued to spike, along with CDS spreads.

Argentina - CDS (basis points, Left) and Sovereign Debt Yield (%, Right)

In Business Monitor Online and Emerging Markets Monitor magazine this week, we feature an extensive analysis of Argentina’s debt predicament and outline three potential scenarios of how the current dispute may play out over the next few months.

Yen Set For More Weakness Against Pound

Meanwhile, we believe that the Japanese yen will weaken further against sterling, having touched an eight-month low of JPY132.69/GBP on Friday, November 30. With opposition Liberal Democratic Party (LDP) leader Shinzo Abe – who is likely to be elected prime minister on December 16 – having called for aggressive monetary easing and a higher inflation target, we think the yen could fall to JPY150/GBP in 2013, and even JPY160/GBP over the next 18 months. Concerns about the yen are likely to increase, as higher bond yields would raise the cost of debt repayment, and thus the risks of a fiscal crisis.

This Week’s Trivia Question

Last week, we asked, which country’s leader stated that week that the official name of his nation should be changed, and why? (Hint: It is a large country and you will definitely have heard of it.) The answer is Mexico, which outgoing president Felipe Calderon feels should drop ‘Estados Unidos’ (United States) from its official name, because it sounds like the USA. For this week’s question, we are sticking with the theme of Mexican presidents, but taking a more esoteric track. We ask, what rare object connects former Mexican president Porfirio Diaz with a long-anticipated major global event that may or may not take place three weeks from today?

Tags: Argentina, bondholders, court ruling, credit default swaps, Debt, Default, GBPJPY, holdouts, Shinzo Abe, sterling, yen
Posted in: Asia, Currencies, Emerging Markets, Fixed Income, General, Inflation/Deflation, Latin America
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