August 19, 2019 / 4:48 PM / a month ago

UPDATE 1-Argentine CDS jump, bond prices dip as markets focus on IMF

(Updates prices, adds comments, changes dateline from previous LONDON)

NEW YORK, Aug 19 (Reuters) - The cost of insuring against an Argentine sovereign default rose on Monday after opposition candidate Alberto Fernandez said the country would struggle under present conditions to repay a loan to the International Monetary Fund.

The cost to insure Argentine 5-year debt rose over 500 basis points from the close on Friday, with $5.2 million demanded upfront to insure $10 million in debt according to IHS Markit, from $4.7 million late last week.

Based on Friday’s closing prices, they estimate a 77% probability of a sovereign default within the next five years.

Monday is a market holiday in Argentina but bonds were traded elsewhere in thin volumes, with both the century and the January 2028 bonds priced at about 47 cents on the dollar each from over 50 cents on Friday, according to MarketAxess data.

Fernandez, the favorite to win the October presidential elections after his showing in the Aug. 11 primaries, said he would seek to renegotiate the repayment terms with the IMF, according to an interview published on Sunday by the newspaper Clarin.

Fernandez “needs to keep the IMF in his back pocket because if not we’re going to have a disorderly and ugly restructuring,” said Kathryn Rooney Vera, head of research and emerging market strategy at Bulltick LLC in Miami.

“CDS is pricing an 80% (chance of default) but it’s going to price a 100% without the IMF.”

It was not the first time Fernandez spoke of a renegotiation with the IMF, calling Argentina’s current commitment “well beyond its own possibilities” back in June after meeting IMF officials.

“While (Fernandez) added some clarity on his views, he did not shed any light on future cabinet members, which would be necessary to understand his economic policies more concretely,” said Citi economists for Latin America in a Monday client note.

Argentina signed a stand-by agreement with the IMF in mid-2018 for $57 billion. That deal is being overseen by President Mauricio Macri, who faces an uphill reelection battle after Fernandez came 17 points ahead of him in primary elections earlier this month. (Reporting by Rodrigo Campos in New York and Tom Arnold in London; editing by Sujata Rao and Chris Reese)

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