Argentine bonds rise after default as investors await deal

Argentina’s dollar bonds climbed as the government said it would improve the terms of a debt restructuring proposal for creditors after slipping into default for the third time this century.

Bonds due in 2036 climbed 2.3 cents to 33.2 cents on the dollar. Argentina’s century bond followed suit, jumping 3.3 cents to also trade at 33 cents.

Talks with bondholders will continue even after Argentina failed to pay US$500 million in overdue interest last week, Economy Minister Martín Guzmán said in an interview Friday. Guzman declined to say when the new proposals would be announced, while reiterating that the government was open to changing aspects of its initial offer and that some kind of sweetener to creditors was still on the table.

While the nation’s bonds have risen in recent weeks to trade between 30 and 40 cents on the dollar, reflecting increased optimism that a deal will be reached, the Emerging Market Traders Association recommended on Friday that the country’s foreign law securities “trade flat” starting May 25 until further notice.

Argentina, which previously asked bondholders for a three-year moratorium on payments and a sharp cut to interest rates, extended the deadline to reach an agreement until June 2. The government is looking to restructure US$65 billion in international debt.

While bondholders now have the option to take Argentina to court to sue for full repayment, creditors said last week that legal action against the country would be counterproductive.

Still, people familiar with the matter said last week there was a gap of about 20 cents on the dollar between what the government was offering and what creditors want.

The nation, currently in its third year of recession, was unable to pay its debts even before it went into lockdown to halt the spread of Covid-19. An agreement now would just be a first step to salvaging the economy.

“Argentina doesn’t have market access already,” said Daniel Kerner, a managing director for Latin America at the Eurasia Group. “ I don’t think that’s going to change in the short term whether the government and bondholders settle or not.”