Argentina seems as likely to stave off another default as Che Guevara is to rise from the dead. Photographer: Diego Giudice/Bloomberg
Argentina seems as likely to stave off another default as Che Guevara is to rise from the dead. Photographer: Diego Giudice/Bloomberg

You have to appreciate the irony: Argentina’s appeal to the U.S. Supreme Court in its debt case was just turned down. So naturally, its bonds … rallied.

The reason is simple: Most people seem to think that Argentina is ultimately going to lose this case. Argentina took a hard line with its creditors after its 2001 default on a record $95 billion in debt, forcing them to take a deep haircut on its bonds (which were issued under U.S. law). Domestic politics dictates a continued hard line against foreign creditors and any foreign courts that suggest it should pay anything to holdout creditors (those who refused Argentina’s stiff terms). And the courts are fed up. They’ve basically told Argentina that if it wants to pay off the bondholders who took the haircut, it will also have to pay off the holdouts. When Argentina ignored them, a New York judge told the banks that processed these payments that they would not be allowed to remit payments to the exchange bondholders unless the holdouts also got paid -- in full, with back interest.

Argentina says it won’t pay the holdouts. And it isn’t bluffing. So when appeals are exhausted, unless Argentina gets a surprise victory from the appellate court, it will probably default and offer to exchange bonds again -- this time for bonds that are paid out in Buenos Aires, instead of New York.

For reasons I don’t have to go into, bonds that pay off in Buenos Aires are less valuable than bonds that pay off here. Moreover, there will be some interruption of payments while all of this gets sorted out. So any news that delays the day of reckoning is welcome.

If Argentina had reached the Supreme Court, that would have meant a final ruling was coming -- one that Argentina was likely to lose. Now it can drag this out for a few months or years until it defaults again.