Argentina bonds rally on opposition gains in primary vote

Argentine bonds rose on Monday morning after opposition candidates performed better than expected in the PASO primary elections.

The price of dollar-denominated bonds maturing in 2030 and 2035 were gaining about two cents on the dollar, reaching their highest levels since October and January, respectively, according to data compiled by Bloomberg.

Stocks are also poised to rise after the result, which puts pressure on the government to change course.

With nearly all votes counted after Sunday's primary elections, the opposition Juntos por el Cambio coalition led in most of the country's districts, including an unexpected victory in Buenos Aires Province, home to more than a third of the electorate.

While the primaries are meant to decides candidates for the November 14 legislative elections, the event also acts as a huge national opinion poll, setting the stage for what will happen in midterms two months from now and the next presidential vote in 2023.

The opposition obtained a tremendous victory, moving the government further away from majorities in both chambers of Congress and improving the opposition's chances of winning back control of the Casa Rosada in two years time, said Marcos Buscaglia, founder of Buenos Aires-based consultancy Alberdi Partners. Given that the government is likely to accelerate fiscal spending and therefore money printing between now and the November elections, we expect foreign currency bonds and equity markets to rebound, but we are less optimistic about the peso and assets denominated in pesos, he added.

Foreign investors have been left frustrated by the administration of President Alberto Fernández. Although the government restructured bonds it had defaulted on, so far it has not been able to reach a new agreement with the International Monetary Fund or even present a long-term economic plan. Capital controls have been tightened and the government has intervened in multiple sectors to try to control inflation.