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Derivatives

Argentine Default Swap Market Set To Return

The market for credit-default swaps on Argentina--which has effectively been shut for several weeks--is expected to return this week when donor organizations announce the amount of new loans they will provide the troubled sovereign. Traders said there is too much uncertainty to trade default swaps at the moment and this will not change until the International Monetary Fund decides on the amount of funding it will provide. Greg Gentile, associate and Latin America credit derivatives trader at Lehman Brothers in New York, said there has not been an inter-bank market in protection on Argentina for three weeks, because the risk of default was so high. He added, "It is like buying a lottery ticket."

David Ross, emerging markets fixed income strategist at 4CAST in London, expects the IMF to make approximately USD6 billion of new funds available and said it is likely to announce this early this week. He added the World Bank, the Italian treasury and private banks will likely lend another USD4 billion.

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