Investors are no longer betting that Argentina is heading towards an inevitable defaultas President Javier Milei takes on sovereign bond markets with his plans to restructure South America’s second-largest economy.
The additional yield that investors demand from holding Argentine bonds relative to U.S. Treasury yields with similar maturities has fallen below 10 percentage points, a level that traditionally signals a plateau.”distressed,” according to data from JPMorgan. The spread is at its lowest levels since August 2019, when former president Mauricio Macri was in office.
Fixed income investors have enthusiastically supported Milei’s ambitious retirement agenda in recent months. Prices for some of Argentina’s sovereign notes have soared to their highest levels since they were issued in a restructuring in September 2020, and markets are pricing in even higher odds that the country will meet its bond payments in January.
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Money managers are also optimistic that Milei will continue to make progress toward ending triple-digit inflation and reversing years of fiscal deficits while maintaining his popularity.
The spread on US Treasury bonds has narrowed by about 941 basis points since Milei took over in December, leading to a wave of debt sales by Argentina’s biggest companies. Still, some on Wall Street warn that the country has a long way to go before the government can consider the idea of a return to markets.
The country’s bonds have offered investors a return of 73.5% this year, the best in the world among developing nations, according to data compiled by Bloomberg.
