Argentine Dollar Bonds Rebound on Court Order for Payment Option

Argentine dollar bonds rallied after a U.S. federal appeals court asked the nation to provide a suggested formula to pay holders of defaulted bonds.

Yields on notes sold under U.S. law due 2017 dropped 232 basis points, or 2.32 percentage points, to 17.66 percent at 1:01 p.m. in New York. The extra yield that investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries plunged 83 basis points to 1,203 basis points, according to JPMorgan Chase & Co.’s EMBI Global index.

Bonds are rallying on speculation the New York-based appeals court may consider an alternative to the payment formula devised by a lower-court judge, which requires the nation to pay creditors from a 2001 default in full. Argentine debt plunged 11 percent on average yesterday after the nation’s attorney, Jonathan Blackman, said at the Feb. 27 hearing that the South American country wouldn’t “voluntarily obey” the order if it were to be upheld by the appeals court.

“It shows that courts may have understood that a par repayment will never be made by Argentina,” said Jean-Dominique Butikofer, who helps manage about $1.7 billion of emerging-market debt at Union Bancaire Privee in Zurich. “Hopefully Argentina takes this opportunity to define a repayment scheme to the holdouts that fits both parties.”

The court said today that Argentina must tell it by March 29 how and when it proposes to make current its payments on the defaulted bonds, the rate it proposes to pay on the defaulted bonds and any assurances it can give that it will take the necessary actions to make the payments.

2001 Default

The South American nation defaulted on a record $95 billion of sovereign debt in 2001, resulting in suits by creditors who didn’t accept the country’s restructuring offer.

Argentina is seeking to offer the so-called holdouts the same as in past swaps, or about 30 cents on the dollar, President Cristina Fernandez de Kirchner said today in Buenos Aires.

Since the Feb. 27 hearing, five-year credit-default swaps have surged 1,166 basis points, the biggest two-day increase on record, on speculation the nation would default if the court upholds the orders to pay $1.3 billion to holders of defaulted bonds. The swaps soared 760 basis points to 3,515 basis points today, data compiled by Bloomberg show.

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.

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