Argentina’s dollar bonds experienced a significant increase on Monday following President Javier Milei’s impressive performance in legislative elections, surpassing even the most optimistic predictions and alleviating investor worries that his economic reform agenda for the troubled nation might face obstacles. The nation’s debt experienced a significant increase across the curve in early trading, with dollar notes maturing in 2035 rising over 13 cents to reach a historic 70.34 cents on the dollar. The nation’s bonds outperformed those of its emerging-market counterparts. With over 90 percent of ballots counted, Milei’s party secured 41 percent of the votes, resulting in the acquisition of 64 seats out of the 127 available in the lower house of Congress and 13 out of the 24 contested Senate positions, as reported by local electoral authorities late Sunday. Market expectations indicated that the governing coalition was projected to secure approximately 30 percent of the seats. The peso was already exhibiting gains in the cryptocurrency market on Sunday as the results were disclosed. “The scale of Milei’s victory ranks at the most optimistic end of pre-election expectations,” stated Alejo Czerwonko. “His party now possesses the political capital required to expedite structural reforms.” The outcomes are expected to alleviate concerns regarding the South American nation’s ongoing receipt of essential backing from the United States.
Before the vote, the Trump administration established a US$20-billion swap line with Argentina’s Central Bank aimed at stabilizing the peso and engaged in discussions with a consortium of banks for an extra US$20-billion financing package. Trump had previously indicated that he might retract his support if Milei’s agenda were to falter, stating to reporters, “if he wins we’re staying with him, and if he doesn’t win we’re gone.” Fund managers had anticipated that assets would experience a rally following the news. Christine Reed stated in an interview that dollar bonds are expected to lead the recovery, while also noting that “the local bond curve should also rally considerably.” The peso is expected to rebound, as “the market went too long US dollar into the election,” noted Matias Montes, a strategist at EMFI Securities. “There will be a significant influx of market participants seeking to liquidate their positions.” Milei’s rise to power in 2023 triggered a significant rally throughout Argentina’s markets, boosting a wide array of assets including stocks and sovereign bonds. The nation’s dollar debt has experienced a remarkable increase of 144 percent since his election, ranking just behind Lebanon and Ecuador among emerging-market counterparts.
The gains experienced a reversal last month following Milei’s disappointing performance in the local election. Yields on sovereign notes due 2035 surged beyond 17 percent, while the currency plummeted by as much as seven percent in a single session as investors expressed skepticism regarding Milei’s capacity to garner sufficient support in Congress to advance his comprehensive economic agenda. The extraordinary backing from the US Treasury mitigated losses, yet failed to alter the prevailing negative sentiment. Conflicting statements from US and Argentine officials, frequently devoid of substantial detail, have exacerbated volatility. Direct US intervention has maintained the peso – crucial for Milei to prevent inflation from reemerging – within the trading limits established as part of Argentina’s recent agreement with the International Monetary Fund in April. Although official sources have not disclosed the magnitude of the intervention, market participants speculate that the United States has allocated over US$1 billion to purchase pesos and provide dollars, as Argentines increasingly seek refuge in the greenback due to apprehensions regarding a potential devaluation. However, the peso has persisted in its decline, concluding on Friday at 1,492 per dollar, just cents away from its lowest threshold. Although trading in the spot market commences in the mid-morning, preliminary signals from the crypto market indicated a level of 1,435, suggesting an increase of approximately 4.8 percent.
Milei and his party have “emerged as big winners with a renewed mandate,” stated Kathryn Exum. “This victory suggests that governors and politicians may be inclined to collaborate with Milei, provided the conditions are favorable, thereby creating opportunities for reform.” Prior to the vote, analysts at several prominent banks were forecasting that Milei would secure approximately one-third of the votes. This would suffice to ensure the president’s veto authority while constraining Congress from obstructing his initiatives. For investors, US support, coupled with a more pragmatic and moderate shift from Milei, could offer sufficient relief to the nation’s beleaguered currency. The decisive victory positions Milei’s party “in good shape” to engage in negotiations with other factions to advance the reforms, as noted by Joaquín Bagues. “Let the party begin,” he remarked.