Argentine Credit-Default Swaps Extend Surge After Bond Hearing

The cost to protect against an Argentine default jumped for a second day after the country said it would halt payments on restructured bonds if a U.S. court ordered it to pay defaulted debt holders $1.33 billion.

The nation’s five-year credit-default swaps soared 874 basis points, or 8.74 percentage points, to 3,629 basis points at 9:16 a.m. in New York, data compiled by Bloomberg show. Since Argentina’s Feb. 27 hearing with the U.S. Court of Appeals, the swaps have surged 1,280 basis points, the biggest two-day gain on record. One-year swaps have soared 2,429 basis points in the period to 7,610, the highest in the world.

Speculation is increasing that Argentina will opt to default on performing debt if the three-judge panel declines to overturn a lower-court ruling forcing the country to pay a group of investors led by NML Capital Ltd. who hold debt from the nation’s 2001 default. Argentina’s attorney, Jonathan Blackman, said at the Feb. 27 hearing that the South American country wouldn’t “voluntarily obey” such an order.

The CDS market is reflecting “an aggressive stance and a positioning where things are going to go against Argentina,” Ray Zucaro, a fund manager who helps oversee about $280 million of emerging-market debt at SW Asset Management LLC, said in a telephone interview yesterday.

The extra yield, or spread, that investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries surged 173 basis points yesterday to 1,287 basis points, the highest in emerging markets after Belize, according to JPMorgan Chase & Co.’s EMBI Global index. The spread narrowed 11 basis point today.

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