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Source: Bloomberg
By: Michael Patterson and Drew Benson

Fidelity Investments, the world's biggest mutual-fund company, expects Argentine bonds to outperform in the coming year as concerns the South American country will default for a second time this decade abate.

Boston-based Fidelity increased holdings of Argentina's benchmark 8.23 percent bonds due in 2033 in the second half of last year, according to filings with the Securities and Exchange Commission. Investors are returning to Argentine bonds on speculation the government has lined up enough financing to cover its budget needs through 2010.

"Argentina is one of my top picks for the next year," John Carlson, an emerging-markets money manager at Fidelity, which oversees $1.25 trillion, said yesterday at a conference on emerging-market investing in London hosted by JPMorgan Chase & Co.

The yield on Argentina's dollar bonds maturing in 2033 fell 76 basis points, or 0.76 percentage point, to 25.63 percent yesterday. The bonds yielded as much as 30.4 percent in October, when default concerns mounted after President Cristina Fernandez de Kirchner announced a plan to nationalize private pension funds. The bonds rose 1 cent yesterday, the most since Feb. 18, to 28.25 cents on the dollar, according to JPMorgan. They traded as low as 22.5 cents in October.

‘A Shocking Thing'

Local creditors agreed to extend maturities on 15.1 billion pesos ($4.3 billion) of debt last month in an exchange that will reduce the government's 2009 debt payments by 5.4 billion pesos, Cabinet Chief Sergio Massa said on Jan. 29. Argentina began a swap for overseas holders of 8.4 billion pesos worth of the so- called guaranteed loans last week in an effort to further reduce debt payments this year.

The country's finances are "secure for the next two years," David Dowsett, who helps oversee about $16.7 billion at BlueBay in London, said yesterday at the conference. "I quite like Argentina here as much as it might be a shocking thing to say. You're well compensated for owning Argentine assets at this kind of level."

Argentine debt tumbled last year as Fernandez's nationalization of pension funds fueled speculation the country didn't have enough cash to repay debt amid a collapse in demand for its commodity exports. The pensions held about $30 billion of assets in October.

The country's debt lost 58 percent last year, the biggest decline since Argentina's $95 billion default in 2001, according to a Merrill Lynch & Co. index. The benchmark 2033 bonds traded at 74 cents on the dollar at the end of August, weeks before the global financial crisis deepened.

Barclays Capital Inc. last month recommended investors buy Argentine bonds maturing in 2011 and 2013, saying the country has enough financing to meet obligations over the next two years without tapping credit markets.

Argentina's bonds offer some of the "most attractive options for investors in cash credit markets," Barclays analysts Guillermo Mondino and Donato Guarino wrote in a Jan. 23 research note.

To contact the reporters on this story: Michael Patterson in London at; Drew Benson in Buenos Aires at

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