Argentine Bonds Rally on Alleged IMF Backing in Debt Case

Argentine bonds rallied the most in four months on speculation the International Monetary Fund is considering supporting Argentina in its request to have the U.S. Supreme Court review its case with defaulted bondholders.

The yield on the nation’s restructured dollar bonds due 2017 fell 186 basis points, or 1.86 percentage point, to 15.22 percent, the lowest since Feb. 11, at 12:48 p.m. in New York, according to data compiled by Bloomberg. The bond’s price rose 4.50 cents to 81.61 cents on the dollar.

IMF Managing Director Christine Lagarde will ask the fund’s executive board to submit a friend-of-the-court brief in support of Argentina’s June 24 petition to the Supreme Court to take a case involving holdout creditors from the nation’s $95 billion default in 2001, two people familiar with the request said. The IMF board is scheduled to meet to discuss the case on July 23, according to two IMF officials who asked not to be named because the meeting is not public.

“Win, lose, or draw, there are going to be a couple more innings to this game,” Ray Zucaro, who helps oversee $350 million of emerging-market debt at SW Asset Management in Newport Beach, California, said in a telephone interview. “The IMF has never weighed in. Now it looks like the Supreme Court angle is gaining potential.”

The South American nation claims a federal appeals court in New York was wrong when it ruled in October that investors in restructured Argentine debt can’t be paid unless holders of the nation’s defaulted bonds, led by billionaire Paul Singer’s Elliott Management Corp. and its NML Capital Ltd. unit, are also paid.

Default Risk

The IMF declined to comment in an e-mail to Bloomberg News. Alfredo Scoccimarro, a spokesman for Argentine President Cristina Fernandez de Kirchner, didn’t reply to an e-mail seeking comment.

Argentina hasn’t issued debt in capital markets abroad since the default and speculation the nation would opt to suspend payments on performing debt rather than pay holdouts has pushed the price of its credit-default swaps to the highest in the world.

The cost to protect Argentine debt against non-payment over five years with credit-default swaps fell 339 basis points to 2,110 basis points at 12 p.m. in New York, according to prices compiled by CMA Ltd.

The extra yield investors demand to hold Argentine debt over U.S. Treasuries fell 123 basis points to 1,016 basis points, according to JPMorgan Chase & Co.’s EMBI Global index. That’s still the highest in emerging markets.

Debt Restructuring

In asking the Supreme Court to take the case, Argentina argued that the lower-court ruling “represents an unprecedented intrusion into the activities of a foreign state within its own territory that raises significant foreign relations concerns for the United States.”

The move by the Washington-based lender would come two months after the fund’s staff published a report warning that the court’s decision on Argentina, if upheld, “could exacerbate collective action problems and risk undermining the sovereign debt restructuring process” around the world.

“The Argentine decisions, if upheld, would likely give holdout creditors greater leverage and make the debt restructuring process more complicated,” the report said.

Fernandez and her predecessor and husband Nestor Kirchner have criticized the IMF’s role during the nation’s 2001 economic crisis and policies that they say increase sovereign debt while sacrificing economic growth and social aid.

IMF ‘Dictatorship’

The government hasn’t allowed the fund to review its finances, as required of all members, since 2006, the same year it paid off its entire debt with the IMF of about $10 billion to end what Kirchner called the lender’s “dictatorship” in a speech on March 1, 2007. Relations grew even more tense after Kirchner replaced senior staff at the national statistics institute.

In February, Argentina became the first nation censured by the IMF for not providing accurate data on inflation and economic growth under a procedure that could end in expulsion. The government says consumer prices rose 10.5 percent in June from a year earlier, less than half the 23.8 percent estimate from private economists.

Argentina has said that forcing it to pay the defaulted bondholders immediately would expose it to $43 billion in additional claims it can’t pay and trigger a new default.

Those potential claims surpass the nation’s foreign currency reserves used to pay debt, which stand at $37.4 billion.