UPDATE 1-Argentine bonds set for another fall after IMF green lights restructuring

Argentine bonds could take another hit on Thursday after the International Monetary Fund essentially gave the government a green light to restructure its bonds, marking the latest chapter in the once-wealthy country's long history of financial crises. The Fund, wrapping up a week-long visit to Argentina, said rising public debts meant the country needs a definitive plan to restore debt sustainability, which would require a "meaningful contribution from private creditors."

The question is how much creditor blood will be left on the floor after the upcoming restructuring operation. "The IMF opened the door for Argentina to begin debt restructuring. Now the focus shifts to determining what a 'meaningful contribution from private creditors' means, and what will happen with the debt Argentina owes to the fund," local brokerage SBS Group said in a report.

Argentine bond spreads widened by 116 basis points to 2,151 over safe-haven U.S. Treasury paper in pre-market hours, indicating an increase in default risk. The country has defaulted eight times in its history, with bondholders dragging the country through long court battles seeking payment.

Economy Minister Martin Guzman has said he wants to avoid a rancorous restructuring but vows to neither keep paying unsustainable debt payments nor impose fiscal austerity on an economy in its third year of recession. Alberto Bernal, the chief emerging markets strategist at XP Investments in New York, said he was not surprised by the IMF statement.

"I stick to my argument that if Argentina wants to grow and get out of this mess, it has to treat bondholders with respect," he said. "If it tries to take advantage of the bondholders, investors will fight and the macro situation will get worse." Argentina is battling to restructure its debts to avoid defaulting on around $100 billion in bonds and loans, including about $44 billion owed to the IMF.

"The IMF statement was within the expectable, but the wording was harsher than I would have thought. The market will not welcome this," Mateo Reschini, a trader with Rosario-based brokerage LBO. He said he expected bond prices to take a hit, after having fallen about 3.5% so far this year. Guzman heads to Saudi Arabia on Thursday for a G20 meeting, where he is scheduled to meet with IMF chief Kristalina Georgieva and U.S. Treasury Secretary Steven Mnuchin.