Argentina rolls over 61% in peso debt auction, yields soar

Argentina’s local debt auction Wednesday fell short of market expectations as President Javier Milei’s administration rolled over just 61 percent of maturities in a key auction that analysts said may prompt a drop in the peso.

The Treasury rolled over 9.1 trillion pesos of the 15 trillion pesos in short-term papers maturing today, while injecting nearly six trillion pesos into the economy to finance the rest. The total maturities represented about a third of all the money in circulation in the economy.

The authorities offered annualised yields of up to 69.2 percent, which even exceeded the record 65 percent they reached on Monday – a reflection of a liquidity crunch in the local financial system after the Central Bank raised reserve requirements in a bid to contain inflation and ease pressure on the currency. 

“Something clearly went wrong,” said Juan Manuel Pazos, chief economist at local broker One618. “They injected six trillion pesos at rates of up to 70 percent. I think it’s self-explanatory.” 

Analysts had warned that a debt rollover rate below 90 percent could pressure the exchange rate, as it would force the government to inject fresh cash into the economy to repay the portion of the notes it wasn’t able to refinance. That could trigger price pressures – economists already see July monthly inflation accelerating – and potentially dent Milei’s approval ratings ahead of elections in the key province of Buenos Aires next month as well as midterms in October.

The government didn’t validate the rates that the market, short of pesos, demanded to roll over the debt, said Ramiro Molina, an analyst at StoneX. “Most likely, tomorrow we will see some weakness in the peso,” he said.

Argentina’s currency weakened more than 13 percent in July, its worst performance since Milei devalued the peso at the start of his administration in 2023. Rising dollar demand ahead of the local votes coincided with a seasonal decline in agriculture export flows, a top source of greenbacks in South America’s second-largest economy. The peso has since recovered some of the losses amid a broad rally in risk assets.