Argentina missed early window to sell bonds, investors say

Ambitious goals from Argentina’s government to bring down country risk are at odds with reality and may have caused it to miss a window to return to debt markets, investors say. 

Javier Milei’s administration passed on a chance to issue in January, deeming it too expensive even as sovereign spreads fell to eight-year lows and anticipation was building. Now, momentum has faded, with the rally in the nation’s bonds stalled and the war in Iran all but shuttering the market for high yield debt sales.

In private meetings with investors in New York, Economy Minister Luis Caputo continued to pitch spreads in the 250 to 300 basis-point range – about half of where they currently trade. 

“Country risk will go to the level that we think it should be. Whether that takes six months, a year or a year and a half, we do not know,” he said at an event on Wednesday. 

Investors see those levels as out of reach for now, pointing to low levels of cash reserves at Argentina’s Central Bank as the main issue.

“Argentina yields are fair,” said Katie Exum, Co-Head of Sovereign Research & Strategy at Gramercy Funds Management LLC. “The key issue is organic FX reserve accumulation under the current framework, especially given the country’s maturity profile with both private markets and the IMF in the coming years. Investors need to see policies that credibly and sustainably address those maturities.”

Argentina’s Central Bank has been consistently purchasing greenbacks, buying up US$2.8 billion since January in a push to build reserves, officials said last week. Through December, however, the country faces US$15 billion in debt service, including US$4.2 billion on global bonds in July. That number steepens next year, when the average annual debt service jumps to US$27.7 billion, according to a JPMorgan note from March 9.

Traders are hoping for an issuance later in the year, once volatility linked to the Middle East subsides, to re-establish market access and secure funding before presidential elections come into view in 2027. A liability management similar to Ecuador’s would also address investors’ main concern: that FX reserves being built could be depleted when maturities come due, especially given looming payments this year and the next. 

Late last year, the government took several steps seen as precursors to Argentina’s first bond sale since the previous administration defaulted in 2020. While an issuance was mulled in January, the administration ultimately decided against it, arguing that current macro metrics justify better pricing than yields of about 10 percent. 

Alejandro Lew, who had been hired as a deputy to Caputo in November to tap markets, resigned on February 27 after clashing over plans to raise funds in international capital markets. The government has pivoted to alternative financing sources to bridge needs, including potential government-to-government loans, asset sales and privatizations, and local law issuances. 

“I would have preferred that they moved forward in January. I respect the team, they’ve done a phenomenal job so far, but it could be a bumpy ride,” said Kevin Murphy, senior managing director at Wellington Management. “Argentine spreads should be narrowing, and what Argentina could probably do to hustle that along is take some steps to get the credit upgraded and make sure they have permanent financing in place.”

Caputo, who’s in New York alongside Milei and other government officials for a three-day event dubbed ‘Argentina Week’ in a bid to attract investment, said the government is “exploring alternatives of funding.”

“We will replace what we have to pay to Wall Street, which is not that much, and with that we will improve the technical position so that fundamentals will prevail” he said on Wednesday. 

Positioning is another constraint. Many global fixed-income funds have held Argentine bonds since the 2020 restructuring, and exposure is already meaningful. Last year’s volatility ahead of local elections served as a reminder of how quickly sentiment can sour in the country.

Even a small transaction – particularly if structured as a tender or liability management operation – could help normalise the curve and reduce uncertainty, investors say. Caputo disagrees, arguing it would not generate immediate cost savings given higher coupons, and instead prefers to meet maturities using accumulated reserves and other financing capabilities.

Still, most investors expect an issuance in the second half of the year. With 2027 shaping up as an election year, many argue that consolidating market access beforehand would reduce risk. The war in Iran has only underscored how exposed high-beta countries remain to sudden shifts in global sentiment.

“Spreads are not falling further because we haven’t had sufficient positive catalysts related to the weakest aspect of the Argentina story, which is FX reserves,” said Aaron Gifford, head of Sovereign Research at T. Rowe Price. “My base case is they’ll wait closer to the July payments to reenter the market assuming domestic news flow continues to be positive and yields are still squarely within single digits.”