Argentina's country risk, measured by JP Morgan, has seen a notable and continuous increase throughout September, reaching 578 basis points on September 25, just shy of 600 points. This eight-session climb has pushed the country's sovereign dollar bonds to yield over 10% annually, a level the economic team is reluctant to validate for new debt issuance. This elevated risk level significantly complicates the Treasury's ability to refinance debt and has forced it to avoid issuing new dollar-denominated titles, instead focusing on peso-denominated or exchange-rate-adjusted instruments. The financial plan for 2027, which includes issuing $5 billion in Bonar 29, now appears highly challenging.
The rising country risk has also impacted provinces and companies, making it harder and more expensive for them to secure financing. For instance, San Juan province recently placed its first international bond for $600 million, accepting a yield of nearly 10% annually, higher than the initially expected 9%. This scenario also raises concerns about the 2027 financial plan and potential defaults, with an inverted bond curve indicating that investors perceive short-term debt as safer than longer-term obligations, with a forward rate between 2027 and 2028 maturities sitting at 15-16%.
Several factors contribute to this heightened risk, including market anticipation of the 2027 presidential elections and associated political uncertainty. The market is pricing in a "political risk premium," demanding higher returns for holding Argentine debt due to the potential for shifts in economic policy after the current administration. Investor sentiment is also affected by a perceived lack of strong support for the current government in polls and the beginning of the electoral campaign, with fears that a victory by a Kircherist candidate could lead to market downturns similar to those experienced in 2019. The market's reaction to President Milei's assertion of $75 billion in reserves to combat the risk spike indicates a lack of full conviction among investors.
