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Argentinas inflation-linked bonds have caught the eye of global investors seeking high returns, triggering a flood of foreign capital into the country and forcing the central bank to mop up huge inflows of cash to keep the peso from rising, analysts say. Filippo Nencioni, global head of emerging markets strategy at Credit Suisse First Boston in New York, told the firms monthly strategy call to clients on July 8 that the bonds offer attractive returns, due to Argentinas 12% annual inflation rate and relatively high yields. The peso remains very stable, Nencioni said. It is stuck in a range that is 42% below where it was trading before the devaluation in 2001, he said.
The combination of a high return on the bonds and a cheap currency is appealing. The total return, or carry, on the countrys 10-year bonds in early July was about 19% when adding in their 7% yield. The bonds have since rallied sharply, cutting the yield to around 6% in early August. Argentinas economy is growing at an annual rate of about 7.3% and the central banks dollar purchases contribute to inflation, according to Nencioni.
Gordon Platt
