Malbec-soused bonds offer haven for hard-hit investors

Argentina’s Mendoza Province has more to offer investors than top-flight Malbec and snow-crested Andean peaks: its bonds are the nation’s top performers this year.

Amid the junk-rated moonscape that is most of Argentina’s debt, Mendoza’s bonds due in 2024 have returned 6.2 percent since January 1, trouncing all other government and corporate notes, data compiled by Bloomberg show. They fetch about 75 cents on the dollar, below their mid-July peak of 88 cents but well above national and provincial notes that now sell for 40 to 50 cents. Buenos Aires Province bonds slid 16 percent this year after one of the world’s biggest rallies in the fourth quarter of 2019.

The west-central region, home to about 70 percent of national wine production, is emerging as an investor haven just as the central government seeks to renegotiate hundreds of billions of dollars of debt with private creditors and the International Monetary Fund.

Buenos Aires Province, meantime, is teetering on the brink of default as it attempts to delay a key bond payment, while the southern province of Chubut is proposing its own payment deferrals on bonds due in 2026.

“Part of Mendoza’s success it that it has good fiscal numbers, and it doesn’t have large bond maturities in the short term, “ said Ezequiel Zambaglione, head of strategy of Buenos Aires-based brokerage Balanz Capital. In addition, “the province has been quite responsible about cutting spending in recent years.”

All that wine doesn’t hurt, either. With the peso in free-fall, Mendoza’s wine exports jumped 25 percent in 2019. The peso slid almost 40 percent last year.

While Mendoza’s bonds still trade at a discount after President Alberto Fernández’s unexpected primary win in August sparked a sharp sell-off in Argentine assets, investors who imbibed at the right moment have reaped solid returns. The notes have jumped almost 28 cents since September to trade at 75 cents on the dollar.