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Argentina’s Local-Law Dollar Bonds Tumble After Debt Swap Plan

Argentina’s dollar bonds sold under local legislation fell after President Cristina Fernandez de Kirchner said the South American nation will offer to swap holders of defaulted and restructured debt into the securities.

Prices on local law bonds due 2017 dropped 2.67 cents on the dollar to 85.47 cents at 8:36 a.m. in New York, their biggest drop on a closing basis since April 12, according to data compiled by Bloomberg. The yield climbed 1.05 percentage points to 13.06 percent.

Fernandez said yesterday that holders of bonds issued in the nation’s debt restructurings will be able to swap them into notes governed by Argentine law in a bid to prevent payment disruptions from a U.S. court ruling in favor of holdout creditors from the 2001 default. On Aug. 23, a three-judge panel said Argentina cannot pay holders of the restructured international bonds unless it pays the defaulted bondholders in full.

“The possibility of increased supply will keep pressure on prices” of the local securities,Russ Dallen, head bond trader at Caracas Capital Markets in Miami, said in an e-mail.

The extra yield investors demand to own Argentine bonds over U.S. Treasuries jumped 16 basis points, or 0.16 percentage point, to 1,091 basis points, according to JPMorgan Chase & Co.’s EMBI Global index.

To contact the reporter on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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