Instead, the $1 billion offering is a repackaging of what Venezuela has been doing for some time now: buying Argentine dollar-denominated debt and reselling it to Venezuelan banks.

"It looks more like a marketing move more than anything else," said Noelia Lucini, a fixed income analyst with Capital Markets Argentina in Buenos Aires. "In effect, they are only issuing Bodens with another Venezuelan instrument."

Venezuela's Finance Ministry launched the bond offer Tuesday and it expires Friday with a Nov. 16 settlement date. The 50/50 combination of Argentine and Venezuela bonds package $500 million worth of a new Venezuelan instrument called "Interest and Principal Protected Securities," or TICCs, with $300 million in Argentine Boden 2012 bonds and $200 million in Boden 2015s.

But Lucini isn't surprised that the joint bond didn't materialize as initially suggested in July.

"It's very difficult for countries with distinct risk profiles, distinct economies, and distinct credit ratings, to issue a joint bond," she said. "What's more, Venezuela didn't apparently want to extend cross repayment guarantees."  

Argentina's risk premium over U.S. Treasurys was 285 basis points, according to JPMorgan's Emerging Markets Bond Index Plus, far wider than Venezuela's 217 basis points, a function of the latter's access to a massive inflow of oil dollars.

In theory, a guarantee from Venezuela would help Argentina tap lower interest rates. Instead, Argentina announced Tuesday that it sold Venezuela fresh Boden 2012s "at market prices," with a nominal value of $420 million - and a market price of $300 million - to help fill out the "Bond of the South" combination offer.

Friends With Benefits

In public at least, Argentine President Nestor Kirchner is one of Venezuelan President Hugo Chavez's strongest allies in the region. In addition to Venezuela buying some $3.5 billion in Argentine bonds since early last year, the Chavez administration has sold Argentina much needed fuel oil to run power plants.

Argentina began selling debt to Venezuela last year to help it avoid a more demanding private fixed income market. Venezuela has in turn resold much of this debt to Venezuelan banks corseted by government capital controls that limit access to dollars. But since banks can turn around and sell the Bodens overseas for dollars, they have a loophole to the capital controls.

"For Venezuelan authorities the goal of the Boden sales is to drain booming liquidity fueled by government spending but trapped behind official exchange controls," J.P. Morgan economist Ben Ramsey wrote in a bond comment.

As such, the "Bond of the South" will help the Chavez administration ease the high unofficial price of the dollar in the Venezuelan black market. But tying up half of the issue in Venezuelan TICCs could water down the impact of the new combination issue since only the Bodens have "a certain secondary market among international investors," Ramsey noted.

Argentina's International Market Return Unlikely For Now

A joint Argentina-Venezuela bond had been seen as way to offset concerns that "holdouts," holders of some $20 billion in defaulted bonds who turned down Argentina's debt restructuring last year, would try to seize securities or interest payments in a solo Argentine offer.

But the need for an international offering may no longer be an issue given the success Argentina has had placing debt at home this year, noted Credit Suisse Emerging Markets economist Carola Sandy.

"For nearly all of the people who have Argentine bonds, it doesn't matter if the bonds were issued under Argentine law or New York law," she said.

Changes to U.S. regulations in recent years have given most U.S. institutional investors easy access to bonds offered in Argentina, she said. What's more, the inability of New York courts to get holdout investors' money back undermines the added appeal of bonds issued under New York law.

Looking beyond this week's combo offer, Argentina is expected to reopen its dollar-denominated Bonar VII bonds as it continues to pre-finance 2007 funding needs.

Local media reported that Argentine Economy Minister Felisa Miceli told a group of investment bankers Tuesday that another Bonar VII issue could be expected by late November or early December.

Argentina sold $500 million in Bonar VIIs in September, the fist tranche in a program for up to $2 billion in the bonds. The auction was oversubscribed with bids worth $1.4 billion.

Argentina will also likely sell more Bodens to Venezuela if the later nation decides to offer more "Bonds of the South."