EMERGING MARKETS-Argentina 5-yr CDS fall after default; emerging stocks hit 9-day low

jueves 31 de julio de 2014 07:35 GYT

By Spriha Srivastava

July 31 (Reuters) - Argentina's longer-term debt insurance costs fell while shorter-term costs rose on Thursday, suggesting investors expect a deal in the medium term after the country defaulted for the second time in 12 years.

Broader emerging stocks dropped after the U.S. Federal Reserve sounded more hawkish on interest rates.

After a long legal battle with hedge funds that rejected Argentina's debt restructuring following its 2002 default, Latin America's third-biggest economy failed to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds.

This sent Argentina into default, but investors thought the country could still strike a deal.

"It's probably going to be more of a soft default scenario where prices will slide a bit. There is confidence in what the government is going to do," said Rune Hejarskov, senior portfolio manager at Jyske Invest, which holds Argentinian bonds.

Argentina's 5-year credit default swaps (CDS) fell more than 400 basis points to 1,444 bps, according to Markit. Its 1-year CDS, however, rose 21 bps from Wednesday's close to 4,708 bps, indicating markets are betting on a higher probability of short-term default.

Argentina's bonds were not being actively traded in London trading hours, market participants said, adding there was little contagion to other emerging markets.

The MSCI emerging stocks index fell 0.7 percent to a nine-day low after the Federal Reserve's policy meeting.   Continuación...