Credit default swap prices on sovereign Argentina
widened late last week after
Ricardo Lopez Murphy
economy minister and announced his plans to stimulate economic
recovery. Bid levels for one-year protection skyrocketed to 1,050
basis points from around 850bps after Callo announced that he
planned fewer spending cuts than the market expected, according to
an emerging markets credit derivatives trader in New
Argentina needs to either cut its fiscal deficit
or increase its borrowings to finance the deficit, said the trader.
When Cavallo announced that he was not planning as many spending
cuts as the market sought, protection levels surged as players grew
more skeptical of Argentina's ability to service its debt.
Cavallo's plan relies less on cutting spending and more on
stimulating growth, according to the trader.
Prior to the announcement, credit derivatives
traders had high hopes for Cavallo. He had originally engineered
the pegging of the Argentine peso to the U.S. dollar, and was seen
as more likely to be able to impose fiscal discipline on Argentina
than his predecessor, Lopez Murphy, said
Mohammed Grimeh, senior
v.p., emerging markets credit derivatives trading at
York. When Cavallo was appointed in the middle of the week, bid
levels fell from their previous highs of about 1,000bps for
one-year protection to 850bps, said Grimeh.
Prices for credit default protection on Argentina
have generally been on an upswing this month. One year protection
in early March cost about 550bps. Lopez Murphy announced spending
cuts earlier this month, but when severe political opposition
developed, protection prices rose to about 850bps.