Argentine bonds rally after IMF deal; peso opens lower

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BUENOS AIRES (Reuters) – Argentina’s bonds rallied early on Friday after the country signed a $50 billion standby arrangement with the International Monetary Fund, while the peso opened lower after the central bank stopped a weeks-long defense of the currency.

A man works on the floor of the Buenos Aires Stock Exchange, Argentina May 9, 2018. REUTERS/Marcos Brindicci

Argentina announced on May 8 it was turning to the IMF after a sell-off in emerging markets prompted a run on the peso. For the past few weeks, the central bank has offered to sell $5 billion in reserves at 25 pesos per dollar, effectively preventing the currency from falling below that level.

That offer did not appear at the open on Friday, traders said, and the peso ARS=RASL opened 0.46 percent lower at 25.10 per U.S. dollar.

At a news conference on Thursday night, central bank Governor Federico Sturzenegger suggested the bank would change tack as a result of the deal, which included pledges from Argentina to speed up fiscal deficit reduction and end central bank financing of the Treasury.

“The way the central bank has been operating in the past few weeks had a lot to do with how to confront the turbulence in the foreign exchange market, which in our understanding has been surpassed with the disbursement and approval of this package,” Sturzenegger said.

“Tomorrow we will return to a normal situation in the functioning of the exchange rate regime.”

Argentina’s country risk – a J.P. Morgan measure of the difference between the country’s bond yields and less risky alternatives – fell 9 points early on Friday morning to 472 11EMJ. Its 100-year bond maturing in 2117 AR163761602= was up 0.5 percent at 87.25 cents on the dollar as of 10:08 a.m. local time (1308 GMT).

The stock market opens at 11 a.m.

“In the short-term we expect a rally in Argentinean assets,” Ezequiel Zambaglione, head of research at Buenos Aires brokerage Max Valores, wrote in a Friday note to clients. “The announcement was above market expectations in the amount and fiscal targets.”

Reporting by Luc Cohen and Jorge Otaola; Editing by Bill Trott and Nick Zieminski

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