Argentina’s 10% yields tempt bond buyers as election risks build

Argentine bonds at double-digit yields are proving attractive to investors willing to shrug off fears about President Javier Milei’s sinking popularity ahead of elections late next year. 

Vontobel and Schroders have ramped up their exposure to Argentina, while London-based hedge fund ProMeritum Investment Management built a position during a selloff that made the country’s sovereign debt the worst-performing credit in emerging markets this quarter.

Strategists at Morgan Stanley have recommended adding long-end dollar bonds, arguing that yields around 10 percent are “too cheap” to pass up despite concerns about the libertarian president’s agenda.

“It’s too soon to start trading the election,” said Thomas Haugaard, a portfolio manager at Janus Henderson Investors based in Copenhagen. “I tend to see this as a buying opportunity more than anything.”

Despite Milei’s weak approval ratings, Argentina’s fiscal anchor remains intact, foreign-exchange reserves are growing and the statist Peronism movement remains highly fragmented, according to Haugaard. Those factors should limit further losses and don’t necessarily point to the kind of political shift markets are starting to fear, he said.

Fernando Gimenez, a senior economist and strategist at ProMeritum, said the firm had no exposure to Argentine credit at the start of August but began buying after the sell-off.

While political volatility is likely to persist until the 2027 election, “the market levels strike me as a very attractive entry point compared to other EM credit alternatives,” Gimenez said.

Early jitters

Investors are seeing early signs that Milei’s shock-therapy bid to revive Argentina’s economy is losing momentum. Analysts have been cutting growth forecasts, the labour market remains weak and recent polls show the president’s popularity hovering near the lowest levels of his term. 

Political pressure is also testing the administration’s broader reform plans. Last month, lawmakers watered down legislation to ease limits on foreign land ownership in response to fierce backlash. Milei was later forced to abandon another key section of the law before it passed, triggering a rout in the nation’s bonds. The notes edged lower this week after a report that Argentina’s congress wouldn’t support Milei’s bilateral trade deal with the United States.

Milei has shrugged off worries about growth and his election prospects, telling Bloomberg News Editor-in-Chief John Micklethwait during a Thursday interview that economic indicators don’t capture the nation’s structural transformation, especially in oil and gas. He added that his government has created more than half a million jobs, many of which he says are overlooked because they’re informal.

Argentina’s dollar bonds have slumped more than six percent since the end of July, the worst performance across the developing world. Some investors say the sell-off has been driven in part by locals, who held almost a quarter of the outstanding dollar notes in the first quarter of the year, according to estimates by Buenos Aires-based broker Portfolio Personal Inversiones.

That level of concentration “will impact technicals,” said Jared Lou, a portfolio manager at William Blair in New York.

Still compelling

The sell-off has made the debt increasingly attractive relative to other emerging markets to investors including Alexander Robey.

“We like Argentina sovereign bonds still,” said Robey, a portfolio manager at Allianz Global Investors. “It’s very compelling at this level of valuation compared to other credits like Ecuador or Nigeria. You’re getting a very significant pick-up in spread.”

Meanwhile, JPMorgan Chase & Co. and Barclays Plc have doubled down on their overweight calls, with the latter calling Argentina “one of the most compelling value propositions” among high-yield credits within the developing world. 

Fernando Grisales, a senior portfolio manager for emerging-market debt strategies at Schroders, started adding to his position as bonds sold off. He pointed to signs that Milei’s poll numbers are stabilising and sees investment in the country’s oil sector, driven by the Vaca Muerta shale formation, as a longer-term trend that’s likely to persist.

“The bonds have repriced, poll ratings for Milei are stabilising, the Central Bank continues to accumulate reserves, and the investment in the oil sector is real – and it’s going to be real whether it’s Milei or any other president for years to come,” Grisales said.