Argentine bonds rally as U.S. ruling quells default fears

Thu Nov 29, 2012 10:35am EST
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By Jorge Otaola and Walter Bianchi

BUENOS AIRES (Reuters) - Argentine bond prices rallied on Thursday after fears of an imminent debt default receded when a U.S. appeals court gave the country an unexpected reprieve in a legal battle with holdout creditors.

The 2nd U.S. Circuit Court of Appeals' decision to grant an emergency stay order gives Argentina more time to fight a ruling favoring "holdout" investors who rejected two restructurings of defaulted bonds to fight for full repayment in the courts.

It delays a ruling on whether Argentina will have to pay $1.33 billion to the holdouts until late February at the earliest, quelling investor fears of a default next month when some $3.3 billion in repayments are due.

"It's very positive because (the U.S. court) has pushed out the stay order until March and that means the government gets more time to see what it can do," said Kevin Daly, a portfolio manager at Aberdeen Asset Management in London.

The cost of insuring Argentine debt against default tumbled across the curve and bond spreads - measuring default risk against that of safe-haven U.S. Treasury paper - narrowed 173 basis points, according to JP Morgan's Emerging Markets Bond Index Plus.

Last week, U.S. District Judge Thomas Griesa ordered Argentina to deposit $1.33 billion by December 15 to pay the holdouts, who are led by NML Capital Ltd and Aurelius Capital Management.

The ruling was a huge setback for Argentina's combative, left-leaning President Cristina Fernandez, who calls the holdout funds "vultures" and has vowed never to pay them.

The standoff dismayed investors who took part in the two debt swaps because they feared the country would refuse to pay and hence fall into technical default on about $24 billion in restructured debt.   Continued...

Argentine President Cristina Fernandez de Kirchner delivers a speech at the closing ceremony of the Union Industrial Argentina (UIA) annual meeting at Los Cardales village in Buenos Aires Province November 28, 2012. REUTERS/Enrique Marcarian