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Argentine Vote Slams U.S. Bond Funds -- Update

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08/13/2019 | 03:45pm EDT

By Matt Wirz

Yield-seeking investors everywhere are getting singed this week by the meltdown in Argentina's markets following the victory of a populist candidate in the South American nation's presidential primary election.

Argentina's 8.75% dollar-denominated bond due in 2024 traded Tuesday for about 45 cents on the dollar, down from 73 cents before populist presidential candidate Alberto Fernandez soundly defeated pro-business incumbent Mauricio Macri in a primary election on Sunday, according to data from IHS Markit.

Falling bond prices have foisted heavy paper losses on the fund managers that took outsize bets on the country's debt. Some large mutual funds had invested more than 10% of their assets under management in Argentine bonds, which lost about one-third of their value in the past two trading days. Argentina comprised 2.3% of the most widely tracked emerging-markets bond index managed by JPMorgan Chase & Co. last week.

A $5.7 billion fund managed by T. Rowe Price Group Inc. held a 7.2% allocation to the country at the end of July, according to a spokesman for the firm. T. Rowe increased its overweight position in Argentina last year, betting that the market was overestimating chances that Mr. Macri would lose re-election or that, if he did lose, his replacement would certainly default on the country's debts, said Ben Robins, a portfolio specialist at the firm.

"We now have a more cautious view," Mr. Robins said, adding that T.Rowe is waiting to hear more from Mr. Fernandez about what his approach to the country's debt would be. "I don't think he's said anything definitive yet."

Fidelity Investments manages a $1.4 billion emerging-markets fund that was 11.3% invested in Argentina as of June and an $8.6 billion fund that had a 6.35% allocation to the country in June, while Ashmore Group PLC's $1.5 billion short-duration emerging-markets fund was 10.5% invested in Argentina as of June, according to data from Morningstar. A spokeswoman for Fidelity declined to comment. Ashmore didn't immediately respond to request for comment.

The price of derivatives that pay out if Argentina defaults more than doubled this week, according to data from IHS Markit. The cost of a credit-default swap protecting $10 million Argentine sovereign bonds for five years jumped to about $4.4 million Tuesday from $1.8 million on Friday.

Write to Matt Wirz at matthieu.wirz@wsj.com

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