Argentina bonds slide toward distress as vote fears come early

Argentine global bonds are heading for their worst week in over a year as a global retreat from risk collides with growing investor anxiety over next year’s presidential election.

The benchmark 2035 note lost more than three cents on the dollar, pushing the yield to 13.77 percent on Friday from 12.67 percent at the end of last week. The extra yield investors demand to hold Argentine debt over US bonds widened almost 140 basis points to 928 – more than double its July low – in the first four days of the week, according to a JPMorgan index.

This week’s rout accelerated a reversal that has been building since July, when Argentina’s country risk touched an eight-year low of almost 400 basis points and investors were anticipating a return to international capital markets. The government ultimately opted against issuing foreign debt, and the benchmark 2035 bond has lost almost 20 cents since then.

“Price action has been bad this week, but this is not news – it is a continuation,” said David Austerweil, a portfolio manager at VanEck. “There is a setup for a perfect storm for Argentine risk, and we still have a long way to go before the Argentine election.”

Argentine markets were closed Friday for a bank holiday, though the bonds pared some losses in New York trading. A spread of 1,000 basis points to US bonds is commonly seen as the threshold for distressed territory.

While the latest rout coincided with a broader global selloff, investors say Argentina-specific concerns have increasingly amplified the move. While the country continues to run a fiscal surplus and benefit from booming exports, markets have begun pricing in risks from the 2027 presidential election far earlier than many investors expected. 

“The market has started to anticipate the electoral process,” said Pablo Goldberg, a portfolio manager at BlackRock. 

The market-implied probability of Milei’s re-election is currently about 45 percent, down from roughly 90 percent around July, according to a model developed by Pedro Siaba Serrate, head of strategy at broker Portfolio Personal Inversiones. That means re-election is no longer the base case implied by bond prices. 

Political developments elsewhere have added to that anxiety. The re-election of Luiz Inácio Lula da Silva in Brazil and Republican losses in the US midterms have prompted some investors to reassess the political backdrop that had supported sentiment toward Milei.

“The market appears to be pricing in a greater chance of the government losing than winning, which doesn’t seem obvious and is also happening quite early,” said Federico Cuba, head of strategy at Allaria. “The Brazilian election accelerated that dynamic, not only because of the surprise, but because Argentina has now become the region’s next major election.”

The US midterm result has also raised questions about whether Argentina could count on the same degree of support from Washington next year. A US$20-billion US swap line proved critical during financial turmoil in 2025, but some investors question whether that backing would be as readily available ahead of a presidential election. 

Adding to the concerns, unusually large purchases of local government bonds this week fueled speculation that authorities were intervening to support the market, which raised questions about potential reserve losses as Argentina faces about US$25 billion in hard-currency payments next year.

“The fact that the government is willing to spend money in such size to support the local market and keep the peso stable brings concerns about reserve drain,” Austerweil said. “We expected reserves to become an issue, but the fact that this is happening so fast is concerning.”