March 26 (Bloomberg) -- Argentina’s dollar bonds sank after the nation lost its bid for a full federal appeals court hearing in New York to reconsider a ruling to pay holders of defaulted bonds.
The nation’s restructured notes due 2033 dropped 1.19 cent to 54.76 cents on the dollar at 2:45 p.m. in New York, the lowest price on an intraday basis since Nov. 29, according to data compiled by Bloomberg. The yield on the bonds jumped 34 basis points, or 0.34 percentage point to 16.20 percent.
The U.S. Court of Appeals in Manhattan today said the full court won’t rehear the appeal, leaving in place an Oct. 26 ruling that bars Argentina from treating restructured-debt holders more favorably than holders of the repudiated debt. As the nation runs out of options, investors are concerned Argentina will opt to cease payments on its exchange bonds if the court, in a related appeal, orders them to repay so-called holdouts from the country’s $95 billion default in 2001 in full.
“This announcement and its timing is a warning for the markets,” Jorge Piedrahita, chief executive officer of New York-based brokerage Torino Capital LLC said in a telephone interview. “It’s clear that the court doesn’t have a favorable position toward Argentina.”
The cost to protect against an Argentine default in the next five years rose 386 basis points, the most in the world, to 3,510 basis points, according to data compiled by Bloomberg. The swaps trading implies a 92 percent probability of default over that time period.
The court is separately considering the details of how a lower court may enforce the October ruling. The judges on March 1 directed Argentina to provide a suggested formula for paying the holders of defaulted bonds by March 29. The court said Argentina’s lawyer, in a Feb. 27 oral argument, “appeared to propose” an alternative to the formula devised by the lower court.
The extra yield investors demand to own Argentine bonds instead of Treasuries rose 15 basis points to 1,275, according to JPMorgan Chase & Co.’s EMBI Global index. That’s the highest in emerging markets after Belize.
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