Argentine Bonds Rally After Holdout Proposal to Resume Talks

Argentine bonds rallied after a court-appointed mediator said holdout creditors asked the country to resume talks to settle a legal dispute that triggered a default.

Argentine bonds due 2033 jumped 1.97 cents to 97.82 cents on the dollar at 1:15 p.m. in Buenos Aires. The extra yield investors demand to own Argentine bonds over U.S. Treasuries narrowed the most in emerging markets to 6.4 percentage points, according to JPMorgan Chase & Co.’s EMBIG Diversified index.

The decade-long conflict between Argentina and creditors holding defaulted bonds from 2001 came to a head last year when President Cristina Fernandez de Kirchner refused to comply with a U.S. court order to pay the investors about $1.7 billion when servicing restructured debt. Now, seven months after the default, and a month and a half after a key bond clause expired, investors are trying to gauge whether Fernandez intends to settle the conflict before she leaves office in December or plans to leave the issue to the next government.

Mediator Daniel Pollack said Argentina hadn’t responded to a Jan. 30 request to restart talks while the Economy Ministry responded late Thursday to say it had been considering the request and was caught off guard by the “untimely” statement.

While the comments from the government and mediator don’t indicate a better chance of a settlement this year, investors are taking them as an excuse to buy Argentine bonds, according to Siobhan Morden, the head of Latin America fixed income at Jefferies LLC.

‘Love Argentina’

“The market just wants to love Argentina,” Morden said by e-mail. “If anyone seriously thought there was a deal, bond prices would be points higher.”

The price on the defaulted foreign law bonds has unpaid and accrued interest built in since payments are being blocked by the court.

The yield on $7.3 billion of local law dollar securities due 2017 fell to a record low 7.96 percent on Thursday.

Pollack said he told Argentina’s U.S.-based attorneys that billionaire Paul Singer’s hedge fund NML wanted to negotiate with the South American nation without pre-conditions and without demanding a cash payment. The nation hadn’t responded to the offer or follow-up calls, Pollack wrote.

NML spokesman Stephen Spruiell didn’t immediately respond to a telephone message seeking comment.

Argentina said the mediator issued a statement without consulting the country, violating the confidentiality of the talks.

‘Undisguised Purpose’

The statement “has the undisguised purpose of favoring, again, the vulture funds,” the Economy Ministry said in its own statement, referring to holdout creditors. “Pollack is trying to establish that Argentina doesn’t want to negotiate.”

Pollack said the U.S. court asked him to inform it on the status of settlement negotiations between Argentina and the holdouts.

“Holdouts have said previously that they would be willing to accept bonds in a settlement,” Credit Suisse Group AG analyst Casey Reckman wrote in a report Friday. “Our base case remains that resolution will not occur before 2016.”

Investors had speculated that Argentina and holdout creditors would resume negotiations to settle the legal dispute after a key clause in the bonds expired Dec. 31 as the country tries to regain international market access 14 years after the 2001 economic crisis.

Argentina reiterated that it wants to find a solution to pay all creditors, not just holders of defaulted bonds who were awarded full payment in U.S. courts last year. The government has said that when adding “me too” holdouts, the nation may owe between $10 billion and $20 billion depending on the terms.

Economy Minister Axel Kicillof said in an interview last month the country was willing to offer similar terms to the 2005 and 2010 debt swaps, where investors took losses of about 70 percent. Singer’s NML has repeatedly rejected those terms.

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