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By Davide Scigliuzzo and Paul Kilby
NEW YORK, March 26 (IFR) - Clearing houses Euroclear and Clearstream have closed trading bridges on some US$9.4bn of Argentine bonds issued under local law, a source familiar with the situation told IFR on Thursday.
The action will prevent Euroclear customers from settling their trades with Clearstream clients and vice versa, but it will not affect trading between customers belonging to the same clearing company, the source said.
“Any instructions to receive or deliver the aforementioned securities from/to a Clearstream Banking Luxembourg customer will be rejected with immediate effect,” Euroclear said in a note to clients seen by IFR.
The note came in response to a similar action taken by Clearstream on March 25 after a US court judge Thomas Griesa allowed Citigroup’s local branch to make payments on such bonds but prevented other intermediaries from doing so.
The decision was part of Argentina’s decade long court battle with holdout investors seeking some US$1.33bn plus interest from the South American country.
Holdouts led by Elliott Management’s NML Capital unit have won a series of legal rulings against Argentina, which ultimately led the country’s second default in a little over a decade last year, when Griesa blocked coupon payments on nearly US$30bn of restructured bonds.
Earlier this month, Griesa said the US dollar, local law notes were covered by an earlier injunction that prevented Argentina from servicing its restructured bonds unless it also made holdout creditors whole.
The closing of the trading bridge came as a surprise to several market participants, who said trading in the securities will now become more complex.
“It fragments the market,” said Jorge Piedrahita, CEO of brokerage Torino Capital. “Investors should be thinking about moving their bonds to a local custodian to make sure their bonds get paid.”
Argentine bonds weakened across the board on Thursday amid fears that the country’s default might spread to at least some of its local-law notes.
Local-law Boden 2015 and Bonar 2024, which are denominated in US dollars but not covered by the US injunction, dropped by as much as one point in afternoon trading to cash prices of 102.0 and 106.5 respectively mid-market.
“Argentina’s default just got a little bigger. (But) people are looking beyond President Kirchner’s term and that is what is keeping the bid in the market,” said Piedrahita.
The securities affected by the halt in the trading bridge have the following ISIN codes: ARARGE03E097, ARARGE03E113, ARARGE03G704, ARARGE03G688, ARARGE03E154. (Reporting by Davide Scigliuzzo; Editing Paul Kilby)