(Bloomberg) — Suddenly, fears of a full-blown financial crisis in Argentina have once again come rushing to the fore.
In the wake of President Mauricio Macri’s stunning rout in primary elections over the weekend, investors dumped its stocks, bonds and currency en masse in a selloff that left much of Wall Street wondering whether the crisis-prone country was headed for yet another default.
The upset, widely seen as a preview of October’s presidential vote, threw the doors open to the very real possibility a more protectionist government will take power come December and unravel the hard-won gains that Macri made to regain the trust of the international markets. It deepened worries his populist opponent, Alberto Fernandez, and running mate, former president Cristina Fernandez de Kirchner, will try to renegotiate its debts as well as its agreements with the International Monetary Fund. The country has billions in foreign-currency debt due over the coming year.
“The market is starting to price in default,” said Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management. “The market is unwilling to give Fernandez the benefit of the doubt.”
Credit-default swaps now show that traders are pricing in a 75% chance that Argentina will suspend debt payments in the next five years. On Friday, the likelihood was just 49%. Its dollar-denominated government bonds lost roughly 25% on average, pushing down prices to as low as 55 cents on the dollar. Yields on shorter-maturity notes soared past 35%.