Argentina's battered bonds and currency were driven still lower on Friday amid downgrades by three credit rating agencies and a new measure the central bank said was designed to "avoid any lack of money" and safeguard the liquidity of the country's financial system. Some private economists said the policy, which could limit the availability of hard peso currency to financial institutions, looked like a return to capital controls in Latin America's third-largest economy.
The central bank has burned through nearly $1 billion in reserves since Wednesday alone, in an effort to prop up the rickety peso. "Financial entities must get prior authorization from the central bank to distribute their earnings," the central bank said in a statement. In a follow-up statement, the bank said the measure was aimed at ensuring the liquidity of the financial system, so that depositors can withdraw money when needed.
US-traded shares of financial services company Grupo Supervielle extended steep losses late in the New York session to fall 8.6% while Grupo Financiero Galicia closed 8.9% lower. Banco Macro lost 6.3%. Standard & Poor's triggered automatic selling of Argentine bonds at big pension funds Thursday night when it slashed the country's long-term rating, saying a default was triggered by a government plan announced on Wednesday to extend the maturities of many bonds.
Risk spreads blew out to levels not seen since 2005 while the local peso currency extended its year-to-date swoon to 36%. Argentina's "Century Bond" maturing in 2117 briefly traded at a record low below 38 cents on the dollar, according to MarketAxess, showing the kind of write-down markets are now bracing for. The peso closed 2.72% weaker at 59.52 per dollar, extending losses so far this year to about 36%. Over the counter sovereign bonds fell an average 5.5% during the day, traders said.
Argentine spreads measuring risk of default versus safe-haven US Treasury paper blew out 261 basis points to 2,533 on Friday, their highest since 2005, according to J.P Morgan's Emerging Markets Bond Index Plus index. The central bank sold a total $387 million in reserves in four auctions Friday, aimed at stabilizing the peso. A fifth auction was abandoned due to lack of buyers, traders said.