BUENOS AIRES Oct 31 Argentina's benchmark dollar-denominated bond prices closed down by as much as 3.9 percent on Wednesday in local over-the-counter trade, a day after Standard & Poor's downgraded the country's sovereign credit rating.
At the same time, Argentina's risk spread widened sharply on JPMorgan's EMBI+ bond index, as the cost of buying protection against an Argentine default surged.
S&P cut Argentina's rating to B-minus from B and gave it a negative outlook, citing increased policy risk and concerns that a recent U.S. appeals court ruling could force the country to repay creditors who have sued to collect on bonds in default since 2002.
Argentina's dollar-denominated 2033 Discount bonds led losses in the local OTC market, ending 3.9 percent lower after sinking 7.1 percent just after the market opened. The 2038 Par bonds closed down 2.7 percent .
Both bonds were given to creditors in exchange for their defaulted paper in debt swaps carried out in 2005 and 2010.
The Global 2017 bond, issued during the 2010 swap, ended 3.1 percent lower.
Argentina has restructured about 93 percent of the roughly $100 billion it defaulted on a decade ago. Holdout creditors who rejected the swaps continue to press in courts worldwide for full repayment on the bonds.
On Friday, a federal appeals court in New York ruled that Argentina violated bond provisions to treat all creditors equally when it made payments to creditors who accepted the swaps while refusing to pay the holdouts. It said Argentina must pay the holdouts every time it services the restructured bonds.
"The market overreacted to the U.S. court ruling. Although it wasn't expected to be so favorable to the holdouts, it does little to hurt our country's payment capacity. For this reason, the fall in sovereign bond prices may represent a buying opportunity," Delphos Investment consultancy said in a report.
Fitch, however, put Argentina's foreign currency debt ratings on negative watch on Tuesday, saying the court ruling "increased uncertainty about Argentina's ability to service its international securities issued under New York law on a timely basis using the U.S. financial system".
Argentine Economy Minister Hernan Lorenzino was quoted by state news agency Telam as saying: "The attacks by the ratings agencies and the vulture funds will not keep Argentina from fulfilling all its commitments".
Argentine officials refer to investment funds that buy distressed or defaulted debt and then litigate to be repaid in full as vulture funds.
"We're not going to pay a single dollar to the vulture funds," Lorenzino was quoted as saying. "This policy is not going to change because we have a commitment to the creditors that entered the debt swap and we are going to respect that commitment."