The JPMorgan EMBI+ index for Argentina, referred to as “country risk,” has been on an upward trajectory in recent weeks, driven by uncertainty related to the upcoming elections, recent economic indicators, and a decline in reserve acquisitions by the Central Bank. Renewed volatility in United States Treasury bonds over the last week – which sent their yields soaring to levels not seen in more than two decades – has further intensified this issue. On Friday, Argentine debt bonds issued under New York law experienced another decline, resulting in a total decrease of up to 4% over the past five trading sessions. This caused country risk, which reflects the interest rate Argentina would pay to borrow abroad, to rise to 602 basis points in the week’s final trading session. In mid-July, the index registered 402 points, marking its lowest level since April 2018. Thus far this month, the index has recorded a 22% increase. Pablo Repetto informed that the rise in country risk stems from a combination of international and domestic factors. On the global front, the development is linked to “the rise in risk-free interest rate,” i.e., the rate on U.S. bonds. In the 30-year segment, for example, Treasuries achieved a yield of 5.9%, marking the highest level since 2004.
With elevated U.S. interest rates, the attractiveness of investing in Treasuries increases, presenting a more lucrative and lower-risk alternative compared to allocating funds to emerging markets like Argentina. That not only impacts the price of Argentine bonds, it also bolsters the dollar in international markets, complicating the servicing of Argentine debt – a significant portion of which is denominated in dollars. The increase can be attributed to a variety of factors. Repetto observed that inflationary pressures “remain firm in the United States,” bolstering forecasts that the Federal Reserve will continue to increase its benchmark interest rates. According to the FedWatch tool from consulting firm CME Group, there is more than a 64% probability that they will raise the rate by 25 basis points at the meeting on October 28. A recent market analysis by Portfolio Personal Inversores broking firm indicated that there seems to be no “short-term resolution” to the conflict in the Middle East, as Iran appears to have “incentives to extend it at least until the U.S. midterm elections in November.” This elevates inflation expectations in the short and medium term.
Another issue is that the conflict with Iran compels the U.S. government to persist in funding the war. “This deteriorates fiscal balance, one of the structural factors pushing up the cost of U.S. Treasury financing,” analysts explained. Additionally, the conflict complicates the macroeconomic outlook for other powers. Japan and Europe, to name two, are also experiencing extensive sell-offs of sovereign debt. “This makes their local yields more attractive and provides greater incentives for foreign holders of ‘Treasuries’ to repatriate their capital,” the PPI analysts said. Finally, Repetto emphasised that the ongoing issuance of debt linked to investments in artificial intelligence fosters competition between corporate and government debt. This influences the global interest rate framework and generates consequences for the sovereign debt of nations, including Argentina.
Alongside the international dynamics, local factors are also contributing to the uncertainty experienced by investors. “Negative readings in economic activity and poverty indicators raise caution [in market actors], as they reflect the difficulties facing the ‘micro’ economy,” said economist Gustavo Ber. Poverty in the first half of 2026 increased to 32%, while economic activity declined by 2.9% on a monthly basis in July. Ber indicated that this weakness might be significant given its implications for “social mood” as electoral strategies start to develop. For Repetto, the issue is not that the country risk could escalate to over 600 points, but rather that 400 points is, in fact, “quite low.” Having country risk in the 600-point range would not be illogical in a pre-electoral context, compounded by the “bad” activity and poverty data and the fact that the Central Bank has lately reduced its foreign currency purchases to strengthen its reserves.
