NEW YORK, Feb 13 (IFR) - Argentina’s defaulted bonds rallied Friday after a UK court ruling on their jurisdiction, surprising many in the market who saw little reason for optimism about the country’s debt.
Its euro and dollar-denominated bonds rose in secondary trade after a London judge said the euro notes fell under UK jurisdiction. The euros were up as much as three points.
But market-watchers poured cold water on the rally, saying the ruling had done little to untangle the messy legal fight over Argentina’s second default in 13 years.
“The rally in bond prices might be due to a general rosy feeling, but there is no obvious legal basis for it,” said Henry Weisburg, a partner at New York law firm Shearman & Sterling.
“The euro bondholders do not obtain any concrete relief from this ruling.” The firm is not involved in the case.
Friday’s ruling resulted from a UK court challenge by holders of the euro notes, including George Soros’s Quantum Partners.
They argued that they were unfairly penalized by a US court injunction preventing Argentina from making scheduled interest payments on the bonds unless other creditors are paid as well.
Those other so-called holdout creditors own some Argentine bonds but have rejected the terms of Argentina’s 2005 and 2010 restructurings, which would have left them with just around 30 cents to the dollar on their holdings.
Euro bondholders saw Friday’s ruling as cause for hope that they might soon be paid, but many in the market believe otherwise, saying few would risk contravening the US courts.
“Until and unless we have a payment order in the UK and an amendment of (the US) ruling carving out UK-law paper from the injunction, paying agents with US affiliates are not going to make payments for fear of being held in contempt,” said Patrick Esteruelas, senior sovereign analyst at asset manager Emso.
But the bonds rallied after the UK ruling nevertheless.
Argentina’s euro Par bonds leapt 1.25 points in early trading to 49.50-50.25, while euro Discount notes rallied as much as three points to 91.75-92.75.
Dollar Pars and Discounts also saw some gains, with the former advancing by half a point to 52.25-53.00 and the latter up a point at 93.00-94.00.
“The dollar bonds should be selling off,” said Siobhan Morden, head of Latin America strategy at Jefferies.
“If you assume a legal resolution toward carving out the euro-denominated bonds to get paid, there is not much motivation to pay the New York law bonds.” (Reporting by Davide Scigliuzzo; Additional reporting by Paul Kilby; Editing by Marc Carnegie)