(Reuters) - Argentina’s debt insurance costs and bond yields rose on Tuesday, as the country’s attempt to move its sovereign debt beyond the reach of foreign law risked aggravating U.S. judges in a legal battle with holdout bondholders.
President Cristina Fernandez offered late on Monday to exchange foreign debts for bonds paying in Buenos Aires, in a move that may skirt a U.S. court decision requiring it to pay the holdouts $1.3 billion.
“The fear is that Argentina is trying to avoid the court’s ruling,” said Alejo Costa, the head of strategy at investment bank Puente, based in Buenos Aires. “If Argentina tries to defy the court and judges lift their stay order, we have a problem.”
Argentina has so far avoided a potential debt crisis thanks to judges’ restraint. Last week a U.S. appeals court surprised some observers with a stay order delaying implementation of its decision pending review by the Supreme Court.
Refusing to pay holdouts despite court orders could block Argentina’s payment of the 93 percent of bondholders who participated in the country’s 2005 and 2010 restructurings.
Five-year credit default swaps rose 350 basis points early on Tuesday and the country’s risk premium rose 23 basis points to 1,098 basis points, according to J.P.Morgan’s EMBI+ index. The risk premium represents the spread in the yield between the Argentine bonds and comparable U.S. Treasuries.
Argentina’s dollar-denominated discount bond fell 3 percent in the Buenos Aires over-the-counter market.
Reporting by Walter Bianchi and Brad Haynes; Additional reporting by Sujata Rao and Jorge Otaola Editing by W Simon