Argentina's credit default swaps continue to rise

June 17 Tue Jun 17, 2014 1:31pm EDT

June 17 (Reuters) - Argentina's credit default swaps climbed again on Tuesday, as investors built in increased expectations of default on bonds sold by the South American nation.

On Monday the U.S. Supreme Court refused to hear an Argentinian appeal aimed at staving off a default. President Christina Fernandez later vowed not to pay holdout investors who did not participate in the country's restructuring of its debt several years ago.

The country owes these holdout hedge funds $1.33 billion. Fernandez said she would continue to pay the 92 percent of creditors who restructured their debt, but legal rulings right now stipulate that if those debtholders are paid, the holdouts need to be paid as well. Otherwise, U.S. District Judge Thomas Griesa could prevent payment to those who restructured, causing a technical default.

The next payment is due on June 30, and the uncertainty has resulted in CDS costs rising sharply.

Argentina's one-year CDS contract, which protects bondholders against default, rose 19 percent to a cost of 7200 basis points, highest since June 2013, with an upfront cost rising to 42.9 percent, up from 38.6 percent on Monday, according to data provider Markit.

The country's five-year CDS contract saw its midspread rise 20 percent to 3190, with the upfront cost rising to 56.3 percent.

Argentina has just $894.4 million of net notional amounts of CDS contracts outstanding, up from the $750 million low reached in December of last year. By comparison, Spain has a net notional of $10.4 billion and Brazil has $17.4 billion, according to data from the Depository Trust & Clearing Corporation. (Reporting By David Gaffen; Editing by Chizu Nomiyama)

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