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Create Your Own Argentine Default Swap For As Little As $5 & Watch It Outperform the Big Boys!

Reggie Middleton's picture




 

Bloomberg reports on Argentina today: 

The nation missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.

Argentina has about $29 billion of bonds sold in international markets and denominated in foreign currencies with so-called cross-default provisions. Under their terms, Argentina would have to pay back the entire balance -- plus unpaid interest -- if at least 25 percent of holders demand that their money be returned. The potential liabilities are equal to the country’s foreign reserves, which are already hovering close to an eight-year low.

Argentine bonds spiked 12% yesterday in anticipation of a deal. No deal materialized!

The price of Argentina’s $4.3 billion of bonds due in December 2033 soared yesterday by 11.8 percent to 95.57 cents on the dollar, the highest level since 2010. The bonds were quoted at 95.89 cents today, according to prices on Bloomberg at 11:08 a.m. in London. 

The Argentine peso will have to be devalued if the country is forced to make good on the debts. That throws gasoline on the already hot inflaton coals...

... The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, will suffer in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Hernan Yellati, the head of research at Banctrust & Co.

Default Swaps soared, but I can show smaller and larger players alike how to make their own synthetic default swaps for a fraction of the costs the banks levy, and much more exact as well.

The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago. Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world yesterday, according to data compiled by CMA. The five-year contracts were quoted at a cost of $3.1 million plus $500,000 a year to insure $10 million of debt, CMA reported at 11 p.m. in London yesterday.

About $1 billion of Argentine sovereign debt is covered by the contracts, compared with $10 billion of Russian government obligations and $16 billion of Brazilian debt. The International Swaps & Derivatives Association is responsible for determining if a credit event has taken place to trigger payment to the holders. That decision would be taken by the association’s Determinations Committee, a group of 15 dealers and investors, only after a ruling has been requested by a trader.

This is how one will go about creating a very specific risk/reward profile through our UltraCoin client to speculate on/hedge against the Argentine situation... 

 

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Fri, 08/01/2014 - 06:32 | 5031725 Bemused Observer
Bemused Observer's picture

You can't "make good" on bad debt! Period. Bad debt must be expunged, and the losses taken. There IS no other way. Anything else is just tap-dancing around the problem, which remains until the bad debt is gone.

Face the facts...it's OVER. The gamble was lost. Now pay the piper, and lets drive ON already!

Thu, 07/31/2014 - 23:42 | 5031179 slightlyskeptical
slightlyskeptical's picture

JPM is likely either going to have to pay the deravitives or buy the bonds from the hold-outs. Perhaps todays action was just a cash raising effort. I'm just assuming it is JPM because there was talk about them buying the bonds which doesn't seem a proftable endeavor in itself.

Fri, 08/01/2014 - 00:43 | 5031319 Quantum Nucleonics
Quantum Nucleonics's picture

JPM is undoubtedly looking to sort out its CDS position by buying the bonds.  Seems to me it's only worth their trouble if they can buy them south of par, but the holdouts seem to be in an "every f***-ing penny sort of mood".

Thu, 07/31/2014 - 21:55 | 5030836 disabledvet
disabledvet's picture

You could just buy the dollar denominated debt...although the dollar amount is so trivial it's probably pretty hard to come by.

Russian yields are north of 8 percent  now too...and they also share a similar default history.

Brazil has the Olympics coming up so issuance shouldn't be a problem there.

Thu, 07/31/2014 - 22:01 | 5030814 imbtween
imbtween's picture

Reggie, not that you should even slightly care in the least, but I like this scheme.

Thu, 07/31/2014 - 20:01 | 5030215 ChartreuseDog
ChartreuseDog's picture

A fool and his money...

Thu, 07/31/2014 - 12:33 | 5027730 Godisanhftbot
Godisanhftbot's picture

 Funny how these clowns bypass online gambling and bookmaking laws by calling it a pair

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