For the second time in 12 years, Argentina experienced a debt default, failing to reach a deal with its creditors and missing a midnight payment deadline. Argentina’s stock market fell by more than 8% on Thursday as a result.
If the International Swaps and Derivatives Association labels the debt default as a “credit event,” most of Argentina’s bondholders will have the right to demand their money be returned immediately. The ruling would also set off a series of insurance payments covering such a situation.
A deal was expected to be made Wednesday, and Argentine bonds had rallied strongly that day because of the optimism of a deal being made.
“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,” Rune Hejarskov, senior portfolio manager at Jyske Invest, a holder of Argentine debt, told Reuters.
The debt default could mean bad news for the Argentine economy, as even a short default will likely raise borrowing costs in the country, inflate the Argentine peso, and deplete any foreign reserves held by Argentina.
However, financial experts do not predict this debt default to be as bad as the 2001-2002 default when the Argentine government was not as solvent and millions of Argentines quickly lost their jobs.