Yen and dollar rise as investors seek safety

  • Yen and dollar rise as investors seek safety

Yen and dollar rise as investors seek safety

Surprise primary election results in Argentina, which resulted in a rout in the country's peso currency, stocks and bonds, have also added support.

Alberto Fernandez, Argentina's presidential favorite, condemned Macri for increasing short-term debt to alarming levels.

Fears of a full-blown financial crisis in Argentina have once again come rushing to the fore.

The peso tumbled as much as 25 percent to a record-low 60 per dollar Monday and the Merval stock index lost the most ever in intraday trading.

On Tuesday, as the market opened, the peso traded at 55 to the dollar, compared to 57.30 at the close of Monday's session for a rise of 4.18 percent.

That is because further falls in the peso - which on Monday at one stage plunged 30% against the United States dollar - will make the flexible formula enacted by the Macri government less sustainable.

Investors fear that if Macri doesn't win a second term in October, the opposing team of left-leaning Alberto Fernández and his running mate - the former leader Cristina Fernández de Kirchner - will undo the progress Macri has made to regain the trust of investors in Argentina and overseas.

Fernandez has vowed to renegotiate the terms of a $57 billion loan the country received from the International Monetary Fund in 2018 meant to help the heavily-indebted country to service future borrowing.

Argentina has billions of dollars of foreign-currency debt due over the next year, according to Bloomberg - $15.9 billion in debt payments is due in 2019, and another $18.6 billion in bond principal, loans and interest payments.

"If Fernandez comes out with some market friendly comments (especially on the International Monetary Fund front) and/or a credible economics team, this would certainly help the sentiment", said Esther Law, senior portfolio manager for emerging-market debt at Amundi Asset Management in London.

In the primary over the weekend, Macri took home only 32% of the vote, while Fernandez won 47%.

Other safe havens like Treasury debt also saw prices fall as investors moved money into riskier assets.

Expected to trail his opponent by just a few points, Macri was instead pummeled at the polls Sunday, with voters giving Fernandez a 15-point lead. Most likely, the growth of the first cryptocurrency is associated with the fall of the peso, which today fell by as much as 30%.

Credit default swap prices from data provider IHS Markit showed five-year credit default swaps (CDS) marked at 2,116 basis points, up from what was already a five-year high of 1,994 bps the previous day.

Other banks followed suit, setting the exchange rate no lower than 60 per U.S. dollar, while in some regional banks the rate is 62-64 pesos per dollar.

In a press conference Monday, Macri said he still has a shot to reverse the trend in October and that his economic team is working on measures to address voter concerns on the economy.