By David Gaffen
(Reuters) - Argentina's debt prices fell again on Wednesday, as investors reacted to the South American nation's newest proposal to place its restructured debt under local law after a series of adverse U.S. court rulings.
Economy Minister Axel Kicillof said on Tuesday that the country is taking steps to swap bonds governed by U.S. law for those governed by Argentine law so they would not be subject to U.S. courts that have made paying existing bondholders more difficult.
"If some sort of solution acceptable to the government is not found, Argentina will probably follow through with the swap and default," wrote analysts at Eurasia Group on Wednesday. "What is harder to gauge is how much the government is willing to concede in the end (or how credible its threat really is)."
The U.S. denominated discount bonds due in 2033 fell more than two points in price to 71.33 cents, boosting its yield to 12.67 percent, according to Thomson Reuters data.
The spreads on Argentina's portion of JP Morgan's emerging market bond index widened by 0.49 percentage point to yield 9.22 percentage points more than U.S. Treasuries.
On Monday, the U.S. Supreme Court declined to hear an appeal by Argentina in its battle against hedge funds which refused to take part in its debt restructuring after its catastrophic 2001-02 default. This left intact a lower court ruling ordering it to pay them $1.33 billion, which Argentina has vowed not to do.
But the ruling stipulates that Argentina must pay these holdouts at the same time as the restructured bondholders, who are due a payment by June 30. If a resolution is not found before then, Argentina would be barred by the U.S. court decision from making payments, pushing the country into technical default 12 years after its devastating debt crisis.
A technical default would not occur immediately on June 30 because the government has a grace period of 30 days before such a determination can be made.
Kicillof said Argentina would also get its lawyers to speak with U.S. District Judge Thomas Griesa, in a last-ditch attempt to negotiate a solution to its dispute with hedge funds.
"Notwithstanding the high uncertainty remaining, the government?s open recognition that discussions with Judge Griesa are becoming a critical element for a permanent solution could be a welcome development," wrote credit analysts at Deutsche Bank.
(Reporting By David Gaffen and Daniel Bases; additional reporting by Sujata Rao-Coverley in London; Editing by Chizu Nomiyama and Jonathan Oatis)
