EM LATAM CREDIT: REBLAST Argentina / YPF: Court Case Outcome – Negative
Reblast of note posted during LATAM hours y'day
https://mni.marketnews.com/44QeDMI
Argentina / YPF: Court Case Outcome – Negative
(ARGENT; Caa3pos/CCC/CCC+)
(YPFDAR; Caa1/B-/CCC+)
• A delay granted by a U.S. court of appeals is positive as it gives the government time to appeal and eventually negotiate a settlement, but a pay out would ultimately be negative for the sovereign. This short-term delay is temporary until the court can rule on the merits of an appeal that would require a longer-term delay.
• Argentina has said that a U.S. court does not have jurisdiction over this domestic issue and that Argentina has immunity protections granted to sovereign nations, but the judge ruled that Argentina is liable since it acted as a commercial entity rather than a sovereign state when it breached its contractual obligations. It is important to note that the court may have considered the expropriation of YPF a sovereign act but the failure to issue a tender offer to minority shareholders was a commercial breach.
• The court was also concerned with sending a message to foreign states that engage in commercial activities in the U.S. that they are not immune from prosecution if they fail to comply with their commercial obligations.
• In 2012 Argentina expropriated Spain based Repsol’s majority stake in YPF and ultimately paid USD5bn in 2014 but never offered to buy out minority shareholders, including Petersen Energia and Eton Park Capital Management who combined owned about 25% of the company’s shares.
• Petersen and Eton Park sold their claim to Burford Capital who has been litigating the case for about 10 years. Finally in 2023 a USD16bn judgement was made in a U.S. district court which Argentina appealed but for the most part has ignored which incited the judge a few weeks ago to order that the government hand over its 51% ownership in YPF shares despite the ongoing appeal.
• YPF was privatized in 1993 with ADR shares listed on the New York Stock Exchange (NYSE) and at that time bylaws were added which required the company to buy out minority shareholders if the government ever re-acquired a 49 percent or higher share of the company. YPF was required to publish notice of the offer in New York, make SEC filings detailing the offer and deliver offer materials to the NYSE.
• The Lawfare Institute article on the YPF case published in November 2023 was a valuable resource in understanding the legal basis for the YPF judgement. The Lawfare Institute is a non-profit multi-media publication with articles that discuss topical and controversial issues in the legal field. Please see the following link to the article:
https://www.lawfaremedia.org/about/about-lawfare
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
GILTS: Lower Alongside Peers
Gilts sell off, looking to global peers for cues.
- Equity markets have recovered from the initial spike lower seen at the Asia open, weighing on bonds.
- Meanwhile, inflationary risks surrounding the Israel-Iran situation provide another bearish factor (albeit markets remain sensitive to risk-off impulses if any escalation does occur).
- Futures trade as low as 92.23, breaking Friday’s low, before a recovery to 92.35.
- The recent uptrend had taken the contract into overbought territory.
- Bears now target the 20-day EMA (92.04), which provides the first firm support level.
- Yields 1.5-4.0bp higher, curve steeper.
- 2s10s in multi-week range, ~63bp last.
- 5s30s back above 120bp.
- Wednesday’s (not the Tuesday initially flagged in our STIR bullet) CPI data and Thursday’s BoE decision were covered in greater detail earlier.
- 45bp of BoE easing priced through year-end vs. ~46bp ahead of the gilt open.
EQUITIES: Focus turns to Triple Witching on Friday
Equity Triple Witching is in Focus for Global Investors on Friday, Rolling/Closing their June Positions.
ROLL PACE: The Pace for the EU is as of Friday:
US:
- SPX: 26%.
- NDX: 20%.
- DOW: 25%.
EU:
- VGA: 16%.
- DAX: 8%.
- FTSE: 19%.
STIR: ECB Implied Cuts Pared On Middle-East Inflation Risks
ECB-dated OIS price 21bps of easing through year-end, 3bps more hawkish than yesterday’s close. The inflationary risks stemming from continued Israeli/Iranian tensions over the weekend appear to have driven the move, while core FI is also pressured by the latest uptick in equity benchmarks. For the Eurozone inflation outlook and therefore the ECB reaction function, the most important risk to monitor is whether the latest escalation impacts actual global oil/gas supply or disrupts key shipping routes in the region. Overall, we think the ECB remains comfortable with current market pricing that implies a high chance of one more 25bp cut this cycle.
- Over the weekend, President Lagarde re-iterated that heightened dampens investment and that "we are within reach of the 2% medium-term inflation target" in an interview with Xinhua News Agency.
- Meanwhile, Vice President de Guindos told Reuters that “inflation is going in the right direction”. In particular, he noted that the “risk of [inflation] undershooting is very limited in my view”. This suggests he also views the risks of overshooting as similarly limited.
- De Guindos highlighted that trade policies are “by far the most relevant factor of uncertainty that we considered in our projections”. Speaking on the risk of disinflationary trade diversion, he stated, with a slightly more dovish tone that ECB’s Schnabel, that “I don’t know whether it’s going to be a big risk, but undoubtedly this is something that we have to monitor and take into consideration.”
- See above for commentary on Nagel’s latest, uncontroversial, remarks.
- Euribor futures are -2.0 to -4.0 ticks versus Friday’s settlement, with the greens/blues leading the selloff.
- ECB’s Cipollone is scheduled to speak today, while final Q1 Euro area labour costs won’t be too interesting to markets.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Jul-25 | 1.906 | -1.9 |
| Sep-25 | 1.799 | -12.7 |
| Oct-25 | 1.771 | -15.4 |
| Dec-25 | 1.712 | -21.3 |
| Feb-26 | 1.703 | -22.2 |
| Mar-26 | 1.688 | -23.7 |
| Apr-26 | 1.691 | -23.4 |
| Jun-26 | 1.696 | -22.9 |
| Source: MNI/Bloomberg Finance L.P. | ||
