Argentine bonds rallied, snapping a three-day losing streak, after the government set a date to begin talks with a court-appointed mediator in its conflict with holdout creditors that threatens to cause a default.
Government bonds due 2033 rose 2.2 cents to 85.40 cents on the dollar at 10:34 a.m. in Buenos Aires, pushing the yield down 0.34 percentage point to 10.24 percent, according to data compiled by Bloomberg. The extra yield investors demand to hold Argentine debt over U.S. Treasuries narrowed 0.31 percentage point, the most in emerging markets, to 6.93 percentage points, according to JPMorgan Chase & Co.’s EMBIG index.
Since President Cristina Fernandez de Kirchner said June 20 she would seek a negotiated solution to the conflict with creditors holding defaulted bonds from the nation’s 2001 economic crisis, her government published advertisements in the New York Times and Financial Times vilifying a U.S. judge for his ruling that blocked the nation from making a $539 million payment on the 2033 debt. The Economy Ministry said late yesterday it will send a delegation to meet with the mediator Daniel Pollack, known as the Special Master, on July 7, hours after holdouts NML Capital Ltd. said no talks had begun.
“The government’s public strategy remains confrontational at times, but we think that much of this is driven by political concerns and attempts to improve its negotiating position,” Casey Reckman, an economist at Credit Suisse Group AG wrote in a note today. “Meeting with the Special Master is an important step in the rational direction.”
Facing a U.S. court order that prohibits it from servicing current bonds until defaulted debtholders are paid, Argentina has to reach a deal by July 30, the date that the grace period on the interest payment expires.
“The Economy Ministry has designated a delegation to meet with the official on July 7,” according to the statement. “Argentina reiterates its willingness to negotiate in fair, equal and legal conditions that contemplate the interests of all creditors which means allowing restructured bondholders to receive their due payment.”
A clause in Argentina’s restructured bonds, which expires Dec. 31, prevents the nation from voluntarily making a better offer to holdouts without making the same offer to exchange bondholders.
Elliott Management Corp., the hedge fund controlled by billionaire Paul Singer that is leading litigation for a group of holdouts through its NML unit, said yesterday Argentina’s assertion that it’s willing to negotiate is a “broken promise.”
Last week the Fernandez administration deposited $539 million to make a June 30 interest payment on bonds that were issued in restructurings following the country’s 2001 default. U.S. District Court Judge Thomas Griesa the next day called the move “illegal’ and a ‘‘disruption’’ to talks. He blocked the payment and urged the parties to reach a settlement.
Aurelius Capital Management LP, which is also demanding payment for defaulted bonds, said in a statement that the country ‘‘refuses even to meet.’’
Jesica Rey, an Economy Ministry spokeswoman, didn’t respond to an e-mail seeking comment.
It costs $3.7 million in advance and $500,000 a year to insure $10 million of debt against default for five years with credit default swaps, according to CMA. That’s the highest in the world.
Argentina has $28.7 billion of international dollar bonds outstanding.
‘‘They’re obviously trying to make as much noise as possible,” said Julian Adams, who manages $75 million in emerging-market bonds, including Argentina’s 2033 bonds, at Adelante Asset Management Ltd. in London. “If they are realistic about it they can reach a deal. If they carry on ranting and raving and ignoring U.S. law, which is what they have been doing for the past couple of days, they will get nowhere.”
The case stems from the country’s 2001 default on a record $95 billion. While Argentina was able to restructure 92 percent of the debt in 2005 and 2010, the rest of creditors refused to take losses of about 70 percent, a restructuring that Fernandez calls the harshest for sovereign creditors in history.
The U.S. Supreme Court on June 16 left intact a lower court ruling that Argentina can’t make payments on the restructured bonds without also paying $1.5 billion to holders of the defaulted bonds. Argentina says if it complies with the ruling, it would be subject to $15 billion of similar claims, or more than half of the nation’s international reserves.
Economy Minister Axel Kicillof at one point said the country was studying plans to skirt the ruling with a debt swap into local law instead of New York law.
Since October, Argentina has settled claims with five companies in the World Bank’s arbitration arm, reached an agreement with the Paris Club group of creditor nations and compensated Spanish oil producer Repsol SA for the takeover of YPF SA. Those moves aimed to burnish the country’s standing with global capital markets. Argentina also improved its economic data reporting after being censured by the International Monetary Fund.
A settlement with holdout creditors would be the last major obstacle to accessing international financing.
NML said June 24 that if there’s “good progress” in the talks, it may support a way for Argentina to pay the bonds by July 30. Pollack, the special master, said last week there had been no progress.
Edwin Gutierrez, who helps oversee $13 billion at Aberdeen Asset Management Plc, including Argentine bonds, said the government and holdouts probably will reach a deal as the end of the grace period draws near.
“This gets resolved but it gets resolved on July 30, and anyone who expected this to happen tomorrow or yesterday were being naive,” Gutierrez said in a telephone interview from London. “They’ll have to pay Elliott. There’s no way around it.”