Argentina and holdouts play chicken
By Paul Kilby
NEW YORK, July 25 (IFR) - The prospect of a technical default by Argentina is looming as the government and holdout investors stare each other down in a very public battle of nerves ahead of the expiration of a grace period for debt payments on July 30.
Efforts this week by US District Court Judge Thomas Griesa to force the two parties together until they reached an agreement brought some comfort, but growing frustration about the lack of progress in negotiations has whip-sawed Argentine assets.
"It is not too late to work out some sort of accord and avoid default, but they are leaving it to the eleventh hour, which Argentina has done before," said Stuart Culverhouse, chief economist at broker Exotix.
The buyside has largely been betting on a last-minute resolution to the country's holdout crisis, putting a floor under bond prices, but with just days left before payments are due, investors have been fretting about their exposure to Argentine risk.
"I would have been selling the bonds on Argentina's deteriorating fundamentals and the only thing that kept me holding them was the possibility of a settlement [with holdouts]," said a US-based investor. "If we are not going to see a settlement, it makes me think twice."
Heated rhetoric from both sides has only inflamed concerns about a negative outcome to closed-door negotiations. Bond prices took another hit on Friday morning after holdout investor NML Capital circulated an email saying it was clear that the South American country would choose to default this week. Continuación...