Argentine bonds climb as creditors, government narrow the gulf

Argentine bonds rose Friday on optimism that the government and its creditors will seal an agreement to restructure US$65 billion in foreign bonds.

US$4.5 billion in bonds due next year rose 2.3 cents to trade at 38 cents on the dollar. Argentina's famous 100-year bonds followed the trend, rising 1.4 cents to 29.5 cents on the dollar.

Investors widely criticised Argentina's first debt restructuring offer, but today's moves show that the market is pricing in terms more favourable to creditors, according to Juan Manuel Pazos, chief economist at TPCG Valores SA in Buenos Aires.

"The fact is that they are closer, but there is a significant chasm, especially when taking into account the differences between creditors," said Pazos.

Argentina's initial offer asked creditors for a three-year moratorium on payments, a sharp cut in interest and a modest 5.4 percent cut in capital. The government faces a predetermined deadline of May 22, when the grace period for US$500 million in unpaid interest expires. Argentina would then enter default – its ninth in its history – if a deal is not made.

Economy Minister Martín Guzmán has said that the country is open to counter-offers from creditors, as long as the proposals help Argentina to restore debt sustainability.

"The negotiations focus on eliminating the capital cut, increasing interest and reaching maximum interest rates faster, and shortening the grace period," Pazos said.

"The latter is the most controversial, that's where the economy meets politics."