Argentina’s bond yields are eclipsing those of Greece for the first time since the European nation’s debt restructuring in March, as speculation increases the South American country will opt to default rather than settle with its so-called holdout creditors.
Yields on Argentina’s euro-denominated bonds due in 2033 surged 4.15 percentage points to a five-month high of 16.93 percent after a U.S. court ruled Oct. 26 the country must pay holders of debt from its record $95 billion default in 2001 when it makes payments on restructured notes. The notes yield 0.91 percentage point more than similar-maturity bonds sold by Greece after it restructured more than $200 billion of debt.
While Greece has contracted for 17 straight quarters and its bailout funds from the European Union have been frozen since June, Argentine bonds are considered less creditworthy because investors doubt President Cristina Fernandez de Kirchner will comply with the ruling and trigger a default as soon as next month, according to TCW Corp Inc. Based on credit-default swaps, the implied probability that Argentina will renege on its debt over the next 12 months has now surged to 63 percent.
“What’s being priced in isn’t a solvency issue for Argentina but instead a risk of technical default,” Marcela Meirelles, a Latin America strategist at TCW Corp Inc., said in a telephone interview from Los Angeles. “There’s uncertainty regarding how the government will react.”
Alfredo Scoccimarro, a spokesman for Fernandez, didn’t return a telephone call seeking comment.
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