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Emerging Markets

Failing the Mexico test, Keep your distance, Exposure control, It's tough to be cool.

Controversy surrounds Argentina's placement of a $1 billion five-year yankee bond in February, the first time it has managed to woo US investors since Mexico's confidence-sapping devaluation of 1994.


Immediately after the issue, Argentine officials declared that at last their country had managed to differentiate itself in investors' minds from Mexico. The bond, launched to coincide with the conclusion of a deal with the IMF, carried a coupon of only 410 basis points above US treasuries, 35bp less than a similarly timed Mexican placement.


Things soon began to go wrong - the Argentine yankee widened to 570bp and the Mexican bond narrowed to 420bp. The co-leads on the deal - Merrill Lynch and CS First Boston - had hyped the issue, say rivals, claiming it was oversubscribed when CSFB had a large chunk still on its books.


"The issue combined bad timing and bad management," says a US-based debt analyst. "It looked good because it was cheaper ... but it was heavily placed with hedge funds, the type of investors looking for a quick return. When it became clear they weren't going to get their money back for some time, they were disappointed. The issue was hyped up and so the disappointment was worse."




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