Argentine Bonds Drop After Holdouts Reject Payment Proposal

Argentina’s dollar bonds due 2017 dropped the most in four weeks after holdout creditors from the nation’s 2001 default rejected a proposal that could force them to take a discount of at least 85 percent on untendered notes.

The so-called global bonds fell 0.89 cent to 78.51 cents on the dollar, the biggest drop on a closing basis since March 27, according to data compiled by Bloomberg. The extra yield investors demand to own Argentine notes instead of Treasuries widened eight basis points, or 0.08 percentage point, to 1,217 basis points, the highest in emerging markets, at 11:38 a.m. in New York, according to JPMorgan Chase & Co.’s EMBI Global index.

On April 19, holders of defaulted debt who say they’re owed $1.47 billion in principal and interest rejected Argentina’s March 29 offer, saying it amounted to less than 15 percent of what they’re seeking. The U.S. Court of Appeals in New York will now decide whether to uphold a lower court order that Argentina pay the holdouts in full at the same time as paying owners of restructured bonds.

“The time lapse made us wonder if there were some” negotiations taking place between the two parties, Casey Reckman, an economist at Credit Suisse Group AG, wrote in a research note to clients. “It remains possible that the decision could be announced in time to put the June foreign law debt payments at risk.”

Argentina is scheduled to make a $42 million interest payment on June 2 for dollar bonds due 2017, and a $345 million payment on June 30 for the so-called discount bonds due 2033, according to Bank of America Corp.

The cost to protect $10 million of Argentine debt against non-payment for five years with credit-default swaps rose 68 basis points at 11 a.m. in New York to 2,139 basis points, data compiled by CMA Ltd. show. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

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