A rout in Argentina's bonds has taken bullish investors by surprise, as a global emerging markets pullback compounds concerns over President Javier Milei's reelection prospects and the country's ability to meet billions in upcoming debt payments.
Argentina's sovereign dollar bonds have been the worst performers across emerging markets over the past two months, with a relentless selloff pushing yields to nearly 12% earlier this week and spreads to their highest level in more than a year. The losses have accelerated despite calls from asset managers including Vontobel, Carmignac, Schroders and Pro Meritum Investment Management, who have said the debt is too cheap to ignore.
"Most large investment funds were overweight and surprised by the magnitude of the selloff. They never thought it would go this far," said Ramiro Blazquez, a Latin America strategist at Stone X. Investors had piled into Argentine assets on hopes that Milei will tame inflation and enforce fiscal discipline. While he has made strong progress on those objectives, it has come alongside lackluster economic growth, potentially hurting prospects for a second term when the country holds its presidential elections a year from now. Argentina is also on the hook for roughly $25 billion in hard-currency debt payments next year.
Ownership dynamics are adding to the pressure. Offshore money managers already hold substantial positions while domestic investors have been reducing their share, leaving fewer buyers to support prices when risk appetite deteriorates. Argentina posted its first annual budget surplus in 15 years in 2024, yet the economy is expected to slip into a mild recession this year. Government confidence, often a proxy for support for the incumbent, is hovering near the lowest levels of Milei's presidency, around 40%. About $4.5 billion in debt payments loom in January alone, and international borrowing remains prohibitively expensive.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing