Argentina defaults but investor see eventual deal possible

Argentina defaulted for the second time in 12 years after last-ditch talks with what it called ‘vulture’ creditors failed, though debt insurance prices on Thursday suggested investors believed a deal could eventually be reached. After a long legal battle with hedge funds that rejected Argentina's debt restructuring following a 2002 default, Latin America's third-biggest economy failed to strike a deal in time to meet a midnight payment deadline. The immediate focus was on whether a group of big banks and funds overseen by the International Swaps and Derivatives Association would declare the situation a ‘credit event’. Any such ruling would set off a series of insurance payments and give most of Argentina's current bondholders the right to demand their money back immediately. The deadline is August 4, according to analysts. The cost of insuring Argentina's debt against default fell sharply on Thursday, however, data provider Markit said, as investors speculated a deal could be struck, even if only in the long term. The country's five-year credit default swaps fell more than 400 basis points to 1,444 bps. ‘It is still not clear whether the credit default swap of the country will be triggered,’ said Emiliano Surballe, fixed income analyst at Bank Julius Baer. ‘The situation that generated the default was a lawsuit, not the failure of the country to transfer the proceeds to pay existing debt,’ according to Reuters.