BUENOS AIRES (Dow Jones)–The Argentine peso weakened at an unusually sharp pace in afternoon trading Monday, falling by more than two centavos to ARS3.6825 to the U.S. dollar.
That puts the peso down from ARS3.6575 on Friday.
“The buy-sell gap is unusually large - more than a centavo - because there are so few dollars available dollars to buy,” said Hector Blanco, a currency trader at ABC Mercado de Cambios. “There are just no dollars available to meet demand for them, so the spread is much wider than normal. Exporters are not liquidating anything.”
Traders expect the Argentine Central Bank to intervene at some point Monday afternoon to bolster the peso.
“They’ll likely jump in before the end of trading today,” Blanco said.
Tension has risen notably in recent days in response a surprise move by the government to move this year’s congressional election forward by four months.
Analysts say the move indicates that President Cristina Fernandez is concerned about losing political support amid a worsening economic slowdown. Meanwhile, investors fear the move means that the government expects to encounter significant economic problems between now and October, when the election was supposed to be held.
A weakening economy and a decline in tax revenue could make it harder for the government to meet its financial obligations this year.
Bonds were tanking Friday, with the benchmark peso bond down by almost 9% in price terms in early trade. The bond is now down 7.76% to ARS38.51, bring its yield to 26.36%.
The Boden 2012 is down 1.39% in price terms to the dollar equivalent of ARS197 ($53.50), yielding 59.64%.
The local daily Ambito Financiero reported Monday that the government will present a bond swap plan for holders of the Boden 2012. The report suggests the government is trying to dispel the speculation over a looming default that surged last week in response to the election date change.
The report, however, also suggests the government is trying to use the beaten-down prices in the market as a reason not to make the payment in full.
The Lower House of Congress approved a plant to change the election date to June 28 and the Senate is currently debating the bill.
-By Taos Turner, Dow Jones Newswires; 5411-4590-2421; taos.turner@dowjones.com
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(END) Dow Jones Newswires
March 23, 2009 13:05 ET (17:05 GMT)
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