BUENOS AIRES, Sept 30 (Reuters) - With five days to go until payment is due on a $5.9 billion maturity of Boden 15 bonds, Argentina is leaving bondholders guessing whether it will pay in cash or launch a last-minute swap in order to protect its foreign reserves.
The capital and interest payment on the dollar-denominated bond would take a large chunk out of foreign reserves that stand at $33.311 billion. Argentina uses those reserves to pay debt, finance imports and prop up its currency.
Economy Minister Axel Kicillof told local radio late last week that investors were "desperately" calling for a swap of the Boden 15 for other bonds, but he was still assessing market conditions. "It is better not to create expectations."
"In our view the appetite for a swap is low, though it would depend on how attractive the swap offer is," said Alejo Costa, chief strategist at local investment bank Puente.
Volatility in markets worldwide because of China's slowdown, uncertainty over the timing of a U.S. interest rate increase and turmoil in emerging markets including neighboring Brazil make it a bad time for a swap, economists say.
A sell-off in Argentine debt after the government ordered mutual funds to adjust the way they value dollar bond portfolios has further complicated matters.
Last Friday, Argentina's Neuquen province cited market conditions for postponing a bond sale. Initial pricing thoughts had seen a yield of about 10.25 percent. [ID:nL5N11W01G}
"It looks like the government is not willing to pay high rates for a roll over. On those lines, we believe there is a good chance they will simply make the payment," Costa said.
Argentines vote in a presidential election on Oct. 25. Paying the bond redemption in cash would restrict the next government's financial room for maneuver, although Argentina faces no more major debt payments until 2017.
Costa said it was expected public institutions like the pension funds would take a bond swap. Estimates for the amount of Boden15 notes held by the public sector vary vastly from 10 to 50 percent.
Argentina's net foreign reserves are seen by economists at between $14 to 16 billion, less than three months imports coverage.
A balance of payments crisis is unlikely as Argentina does not have to pay back those loans in the immediate future, said Mauro Roca of Goldman Sachs..
"Most of international reserves are readily usable," he said. "In the short run, the risk of a balance of payment crisis could remain contained." (Reporting by Jorge Otaola and Sarah Marsh; Editing by Richard Lough and W Simon)