LONDON, April 3 Argentine credit default swaps
and bond yields fell sharply on Wednesday on signs a technical
default should not take place at least until June, when the next
coupon payment comes due on its restructured bonds.
The country made a scheduled coupon payment on its 2038 Par
bonds and will pay interest on its 2015 Boden bonds later on
Wednesday, an economy ministry spokeswoman said.
Markets were also supported by a New York court's demand on
Tuesday that hedge fund creditors consider Argentina's payment
proposal. The funds, which are suing Argentina for $1.3 billion
in payments on defaulted bonds, have until April 22 to respond
to the payment offer.
While the funds are unlikely to accept the proposal, which
would pay them a sixth of what they demand, the three-week
deadline delays any definitive ruling and allows Argentina to
keep servicing its restructured debt.
"The reason bonds are rallying is that the court accepted
Argentina's proposal and asked (hedge fund) Elliott to respond.
This shows some sympathy to resolving this issue in a
non-default way," said one fund manager in London.
"I expect Argentina to make payments until there is actually
a legal ruling against them."
Argentine bond yield spreads over U.S. Treasuries tightened
36 basis points to 1,271 bps on the EMBI Global index while the
main 2017 dollar bond rose half a percent to trade at around 74
cents on the dollar, the highest level in a week.
Argentine Discount bonds rose almost a whole point
Data from Markit showed a fall in debt insurance costs too,
with five-year credit default swaps (CDS) falling more than 300
bps to 3,087 bps, while one-year CDS dropped more than 500 bps.
On Argentina's over-the-counter bond market, the bid price
for dollar-denominated Par bonds surged 6 percent
in midday trade, while the Global 2017 bonds gained 2.7 percent
The Par, Discount and Global 2017 bonds were issued during
debt exchanges in 2005 and 2010, and were accepted by about 92
percent of creditors affected by the country's 2002 default.
Creditors who entered the debt exchanges received 25 to 29
cents on the dollar for their defaulted bonds, but hedge funds
NML Capital, a subsidiary of Elliott Capital Management, and
Aurelius Capital Management are demanding to be paid in full.
Two U.S. courts have said Argentina must fully repay these
creditors when it next services its restructured debt, but
Argentine officials say this is impossible since they are barred
by law from bettering the terms of the previous swaps.
Argentina's Vice President Amado Boudou said over the
weekend that the country would keep honoring its debt
irrespective of the outcome of the legal battle, prompting many
to speculate that Buenos Aires was mulling alternative ways of
paying exchange bond holders.
"Boudou was very vocal in saying they will keep servicing
restructured debt and that was a strong signal," said
Jean-Dominique Butikofer, head of emerging markets fixed income
at UBP in Zurich.