Peso slides, bonds jump after FX rules lifted

Argentina’s sovereign debt climbed Monday while the peso slipped after the country lifted most of its currency-market restrictions as part of its new US$20-billion programme with the International Monetary Fund.

The official peso was down some 10 percent to trade at 1,179 per dollar Monday in Buenos Aires at 12.16pm local time. Sovereign bonds were among the best performing in emerging markets, with yields on benchmark notes due 2035 falling to 11.6 percent, according to pricing data compiled by Bloomberg.

The moves come as markets reopen after Economy Minister Luis Caputo said late on Friday the country will receive US$15 billion from the IMF this year, US$12 billion of which will arrive on Tuesday. He also announced that authorities will let the currency trade within a range of 1,000 pesos to 1,400 pesos per dollar, and lift many of its foreign-exchange restrictions.

Asset managers had been pushing for the nation to dismantle controls to make it easier to amass hard-currency reserves, money it needs to support the peso and make debt payments abroad. Few, however, expected the government to do so before midterm elections which are scheduled for the second half of the year.

“The timing of it and the size of it are surprising,” said Jared Lou, money manager for emerging-markets debt at William Blair. “The sizeing should be seen as a net positive, the timing of it gives the country better chances of reserve accumulation.”

The rally extended across Argentine assets. US-listed shares of oil-driller YPF SA rose as much as 17 percent, the most intraday since November 2023. An exchange-traded fund tracking Argentine stocks climbed as much as nine percent, reversing year-to-date losses. Notes issued by the Buenos Aires Province also advanced some five cents on the dollar to the highest since March, before geopolitical woes and concerns about US growth tanked global markets.

Money managers say further gains hinge on President Javier Milei and his team continuing to deliver on an agenda of strict fiscal austerity while igniting economic growth and maintaining popular support among voters.

“It is really down now to implementation and continuing to show decent outperformance on the fiscal and FX reserve side versus forecasts,” said Joe Delvaux, senior portfolio manager for emerging-markets fixed-income at Amundi.

Investors are also keeping a close eye on developments from US Treasury Secretary Scott Bessent’s visit to Buenos Aires, where he’ll meet with Milei. Some on Wall Street say the visit is poised to further boost the libertarian leader’s momentum at home and abroad, adding that it may portend additional US financing.

“Will that visit bring tariff relief or some extra FX funding? We view both as likely,” Fernando Sedano, Morgan Stanley’s Chief Latin America Ex-Brazil Economist, wrote in a Monday report.

‘Big step’

The government is also eliminating a key rule known as “dollar blend” so that all export dollars are liquidated in Argentina’s official exchange market instead of a split system previously in place for years. Authorities said they would end a US$200 per month cap for individuals to exchange pesos for dollars, as well as fees applied on those transactions.

Companies will also be allowed to send some dividends abroad that are related to this year, while dividends that built up over past years will take more time to unwind. Separately, firms can immediately pay for imports, reversing a previous restriction.

“The move to a more sustainable FX regime, backed by strong international support, is a big step forward for the policy framework,” said Graham Stock, senior emerging-markets sovereign strategist with RBC Bluebay. “We were already constructive on the policy adjustment under way in Argentina but the weekend’s developments reinforce its sustainability.”

To be sure, moves to liberalize the currency risk fanning inflation six months ahead of a midterm election that will serve as a bellwether for Milei’s reforms, according to JPMorgan Chase & Co. economists Diego Pereira and Juan Goldin. But it’s unlikely, they add, that it will derail Milei’s progress in eliminating inflation altogether.

“Inflation will not accelerate enough to derail Milei’s midterm election prospects but still a risk to monitor,” said William Blair’s Lou. “If he gets past the elections, he’ll be in a pretty good spot.”