RegionsLatin AmericaArgentine Bond Insurance Costs Rise on Default Threat

Argentine Bond Insurance Costs Rise on Default Threat

Renewed concerns that Argentina may be edging closer to its
second default
in just over a decade has pushed the country’s debt insurance costs and bond yields higher.

The cost to insure US$10m of Argentina’s sovereign debt for one year rose to $6.6m, the highest since the record US$8.58m set in November, as the long-standing issue of whether the country should pay US$1.33bn to investors on defaulted bonds was heard in the Second Circuit Court of Appeals in New York. On 27 February, Argentina requested that the court set aside a decision by New York federal judge Thomas Griesa last year that barred the country from making payments on its restructured debt unless it set aside additional funds for creditors who didn’t participate in the restructuring.

Argentina has resisted paying defaulted creditors led by US fund Elliott Associates, disparaging them as “vultures”. Judge Reena Raggi aggressively questioned Argentina’s lawyer, Jonathan Blackman, over the consequences should the court rule against the country. His response: “We would not voluntarily obey such an order,” was taken as meaning that Argentina would opt for default instead.

Investors now believe that a default could occur at the end of this month, when Argentina is due to make a US$180m coupon payment on a par bond, if the US court rules against before 31 March. Argentina has pledged to pursue its case in the US Supreme Court if the appeals court verdict goes against it.

Following this week’s hearing, Argentine vice president Amado Boudou said: “It’s not that Argentina won’t pay. Argentina will always pay those who entered into the exchange. What Argentina won’t do is break its own laws.”

Argentina’s government hasn’t been to the international debt markets since its default in 2001 and its provincial governments and corporations have largely been shut out of foreign capital markets. Investors are generally nervous about economic policies pursued by Argentine president Cristina Kirchner, which include currency controls, high tax revenues, the nationalisation of the pension fund industry in 2008, and a growing reliance on the central bank as a lender of last resort.

Argentina’s inflation rate began 2013 at over 11% according to official government data, but analysts claim that the actual rate has now moved over 25%.

Related Articles

Mapfre signs up for responsible investment

EEA Mapfre signs up for responsible investment

12m Graham Buck
Drought stress testing tool launched for banks

Banking Drought stress testing tool launched for banks

1y Graham Buck
US executives are most bullish on economic growth

Asia Pacific US executives are most bullish on economic growth

1y Graham Buck
Startupbootcamp makes tracks for Latin America

Financial Services Startupbootcamp makes tracks for Latin America

1y GTNews
Latin America’s prospects and the Trump factor

Banking Latin America’s prospects and the Trump factor

1y Jose Luis Lopez-Sors
Quaero appoints Amancio Perez as head of Iberian sales

EEA Quaero appoints Amancio Perez as head of Iberian sales

1y GTNews
Latin America: will Trump undermine an improved business environment?

Economy Latin America: will Trump undermine an improved business environment?

1y Jimena Blanco
US auditing watchdog fines Deloitte Brazil US$8m

Financial Services US auditing watchdog fines Deloitte Brazil US$8m

1y Graham Buck