Argentine Bonds Jump on Prospect of Settlement With Holdouts

Argentine bonds surged the most in emerging markets on speculation the South American nation is moving toward settling with holders of defaulted debt.

Global dollar bonds due 2017 jumped 4.94 cents on the dollar to 97.16 cents at 3:51 p.m. in New York after Argentine online news service Infobae reported a government plan to pay investors including hedge fund Elliott Management Corp. in full. Infobae cited unidentified people familiar with the matter.

Economy Minister Axel Kicillof will offer the hedge fund securities due in 2024 and 2028 in exchange for bonds that weren’t tendered in the nation’s two debt swaps following its 2001 default, Infobae reported. The government will pay the full amount a U.S. judge said was owed to the holdouts to avoid triggering a clause that would require the nation to extend a voluntary offer to investors who accepted losses of 70 percent in the bond exchanges in 2005 and 2010, Infobae reported.

“It provides enough details to suggest that there is a plan in the works,” Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies Group LLC, said by e-mail. “Everyone wins in a negotiated solution.”

Jesica Rey, a spokeswoman for Kicillof, declined to comment today on the Infobae report.

Kicillof met with court-appointed mediator Daniel Pollack for four hours on July 7, and government officials will hold additional talks with Pollack on July 11. Argentina is ready to negotiate, Kicillof said in a statement yesterday.

Court Ruling

The extra yield investors demand to own Argentine bonds instead of Treasuries plunged 0.79 percentage point to 5.9 percentage points, the lowest in three years, according to JPMorgan Chase & Co. The Bank of New York Mellon Argentina ADR Index jumped 5 percent to the highest since August 2011.

The court ruling forces Argentina to compensate holdouts led by Elliott in full when it makes payments on its restructured debt. U.S. District Judge Thomas Griesa on June 27 blocked a $539 million interest payment on performing bonds because the country had failed to comply with the ruling.

The securities, which mature in 2033, will be in default if Argentina doesn’t reach a settlement by July 30, the end of a 30-day grace period. Those bonds soared 5.77 cents today to 94.12 cents on the dollar, the highest price since January 2011.

Elliott is willing to accept bonds as a partial form of payment for defaulted securities, Jay Newman, a money manager at the New York-based hedge fund, said in a July 7 opinion piece in the Financial Times.

Earlier this year, the nation negotiated similar accords with the Paris Club group of creditors as well as Madrid-based Repsol SA as compensation for the seizure of YPF SA.

At this week’s meeting, Kicillof told Pollack the effects of the court ruling, which the U.S. Supreme Court left intact last month, must be delayed.

“It’s still purely speculation at this point,” Joaquin Almeyra, a Miami-based bond trader at Bulltick Capital Markets, said by e-mail. “More than anything else, it’s the will of the market that this gets resolved.”

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