Is it a credit event?
Argentina, Latin America's third-biggest economy, defaulted after the failure of talks with what it called "vulture" creditors as focus turned to whether big banks and funds would request the declaration of a "credit event."
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Argentine Cabinet chief Jorge Capitanich hit out at U.S.-court appointed mediator Daniel Pollack, calling him "incompetent". Capitanich urged holders of Argentina's exchanged bonds to demand their money from the U.S. judge who blocked a June 30 payment, triggering the path to default.
The International Swaps and Derivatives Association (ISDA) has agreed to consider whether a credit event has occurred on Argentina's credit default swap contracts (CDS), according to its website.
Swiss bank UBS on Thursday submitted the request for ISDA's determinations committee to consider whether a "failure to pay" credit event has occurred, citing a missed deadline to deliver interest payments to exchange bondholders.
ISDA's 15-member committee is expected to vote on whether a payment on Argentine CDS contracts can be triggered in the next couple of days, according to a source close to the discussions.
Any ruling that a credit event had occurred 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 Monday, according to analysts.
Credit Suisse earlier said CDS were "likely to be triggered".
Emiliano Surballe, fixed income analyst at Bank Julius Baer, said: "It is still not clear whether the credit default swap of the country will be triggered. The situation that generated the default was a lawsuit, not the failure of the country to transfer the proceeds to pay existing debt."
Argentina parked with its bankers the money to pay its current bondholders, but a U.S. legal ruling prevented it from doing so unless it paid off the holdout bondholders first.
"It's probably going to be more a soft default scenario where prices will slide a bit. There is confidence in what the government is going to do," said Rune Hejarskov, senior portfolio manager at Jyske Invest, which holds Argentinian debt.
The default could get much messier and take longer to clear up if creditors force an "acceleration" for early payment on their bonds. Some investors saw this as unlikely.
"I don't think at the moment there is a clear answer to whether bondholders will accelerate a deal. It's probably not something most bondholders would like to see," said Olivier De Timmerman, fixed income fund manager at KBC Asset Management in Luxembourg.
The bonds at the center of the struggle had rallied strongly on Wednesday along with Buenos Aires stocks and the peso as bets on a deal rose, but traders were left up in the air after the talks fell apart. "We expect part of (Wednesday's) rally to come back to couple of points. ... Discount bond (bonds given to investors when Argentina restructured) prices will come back a bit and we will probably see a fair value around 85." Hejarskov said.
Even a short default will raise local companies' borrowing costs, pile more pressure on the peso, drain dwindling foreign reserves and fuel one of the world's highest inflation rates.